Diverging Fed-ECB Policy Outlooks Send EUR/USD Plummeting
The EUR/USD pair declined to a 15-month low of 1.1312 yesterday, amidst diverging Federal Reserve and European Central Bank policy outlooks and ahead of key inflation data releases.
Strong economic growth in the US, combined with elevated oil prices, has fueled inflation concerns, leading to a rise in U.S. Treasury yields to multi-decade highs. However, job openings fell more than expected, and New York Fed President John Williams warned that there was no rush to hike rates again.
Markets have lowered Federal Reserve rate hike expectations for October from 70% to 40%, pulling the US dollar off its recent peaks. The focus now turns to today's core PCE data, which is expected to hold around 3.3-3.4% year-on-year in August.
The divergence in monetary policy between the Fed and ECB is reinforcing the weaker euro, stronger dollar dynamic. EUR/USD trades with a bearish bias below its 200 and 50 EMAs, with sellers needing to close below the 1.1340 support zone to bring 1.1300 into focus.