Both the US Federal Reserve and the European Central moderated their pace of tightening this week, with rate hikes of half-percentage point each, downshifting from a series of outsized 0.75% moves. However this was accompanied by hawkish rhetoric and guidance, pointing to more rate increases ahead.
Chair Powell said that the bank still has "some ways to go" on rates and stressed the need for maintaining a restrictive policy stance "for some time". More to it, officials revised higher the terminal rate projection, now expecting a median of 5.1% by the end of 2023. This is a significant bump over the previous forecast and implies another 75 basis points of hikes. 
The ECB however appeared to be even more aggressive and out-hawked the Fed, saying that interest rates will need to rise "significantly at a steady pace". This means hikes "at a 50-basis-point pace for a period of time" according to Ms Lagarde , suggesting potentially another 100 basis points of increases.
The central bank activity created EUR/USD volatility, but did little in the way of providing direction, as markets digest the news and try to assess the credibility of their guidance. The pair runs its third straight profitable month and this latest round of decisions did not offer something to reverse the positive bias, since the ECB seemed more hawkish and has more ground to cover compared to its US counterpart.
Yesterday it set new six month highs, which gives it the ability to push for 1.0787, although further advance towards and beyond 1.0942 has a higher degree of difficulty.
On the other hand, the Fed also pledged to keep tightening, while the economic slowdown could spark risk-aversion, which would be be more likley to benefit the greenback. Furtermore, EUR/USD faces pushback around the 38.2% Fibonacci of the 2021 High/2022 low drop. This creates risk for downside test of 1.0500, but a catalyst will be needed for the EMA200 (1.0370-60) to be challenged.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
Retrieved 15 Dec 2022 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20221214.htm
Retrieved 08 Dec 2023 https://www.ecb.europa.eu/press/pressconf/2022/html/ecb.is221215~197ac630ae.en.html