EUR/USD Catches a Breath After Wednesday’s Hawkish Fed Minutes

Hawkish FOMC Minutes

The US Fed had raised rates by 25 basis points last month and had pointed to more adjustments ahead in the face of surging inflation, with one member dissenting in favor of a larger 50 basis points move.

Yesterday, the bank published the accounts of that meeting ^[1], which revealed that "many participants" would have preferred a half-point hike, but refrained from it, with a number of them citing "near-term uncertainty associated with Russia's invasion of Ukraine" as the reason.

However, the minutes also showed that many officials are ready for bigger moves in upcoming meetings, since they believed that "one or more 50 basis point increases in the target range could be appropriate at future meetings".

The Fed's balance sheet has swollen to nearly $9 trillion as a result of the Quantitative Easing (QE) program that ended in March and based on yesterday's minutes, the run-off could begin as early as the next meeting in May.

Participants "generally agreed" that a reduction pace of $95 billion/month "would likely be appropriate". That would consist of $60 billion for Treasury securities and about $35 billion for agency mortgage backed securities (MBS).

Fed Speaker & ECB Minutes Ahead

The release of the minutes came a day after Ms Brainard had commented that inflation is "much too high" and getting it down is of "paramount importance", adding that the bank is ready to take "stronger action" if warranted. ^[2].

Markets will be hearing from more Fed members today, including prominent and outspoken hawk Mr Bullard, who had voted for a fifty-point hike last month.

The US and its central bank are not the only ones troubled by high inflation, as last week's preliminary data for March, showed that the Consumer Price Index jumped 7.5% year-over-year in Eurozone. The final reading for February was at 5.9%.

In March, the European Central Bank (ECB) had announced a faster tapering and earlier conclusion of its Asset Purchases Program (APP), opening the door to rate hike within the year, but it has a tougher job, since the European economy is much more exposed to the outfall of the war in Ukraine.

The accounts of the ECB's last policy meeting are published today at 11:30 GMT, while the next decision is expected next week.

EUR/USD Analysis

The previous week was profitable for the pair, but the current one is negative due to the Fed's hawkish messages and aggressive market pricing around its tightening path.

The technical landscape has not changed much, since the pair remains vulnerable to the year's lows (1.0805) but the next major support is distant (1.0635).

Despite that, the common currency some support today and tries to pause its five-day losing streak and a push towards the 1.1000 handle could be in the cards, but we remain pessimistic around its ascending prospects, while the region from 1.1070 and above contains multiple roadblocks.