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EUR/USD Forecast as the US Dollar Regains Momentum

EUR/USD Forecast as the US Dollar Regains Momentum

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EURUSD has edged lower ahead of the highly anticipated Fed interest rate decision. In the past week, the currency pair bounced off its 20-year low when the euro reached parity with the greenback. The energy crisis and high inflation has been weighing on the euro in recent months. Earlier in the week, countries within the eurozone reached a deal to voluntarily cut their natural gas consumption by 15% as from August.  

Analysts’ outlook

The Euro’s bearish outlook will likely persist in coming months as the energy crisis and high inflation is set to further slow the economy’s growth. According to JP Morgan, the eurozone could get into a recession in Q4’22.

In line with this forecast, the investment bank expects the European Central Bank (ECB) to only approve a rate hike of 50 basis points in the remainder of the year.  This consists of a 25 basis points increase in September and October. After that, uncertainty over the economy’s growth may force the central bank to pause on the hikes.  

Fed’s hawkish stance

In the immediate term, investors are keen on the Fed interest rate decision. Analysts expect the Fed to approve another super-sized rate hike of 75 basis points; having increased its benchmark rates by 150 basis points since March.

Bets on an aggressive rate increase by the Fed has strengthened the greenback relative to its rivals. Notably, the currency is also benefiting from its conventional status as a safe haven. This is founded on the heightened concerns over slowed global economic growth. Indeed, there are fears that the US economy may fall into a recession and take the world down with it.

In the data front, EURUSD will also be reacting to the euro zone’s consumer confidence data set for release on Thursday. The index remains deep in the negative territory although analysts expect to remain unchanged from the prior month’s at -27.0.

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Crispus Nyaga
Crispus Nyaga
Crispus is a financial analyst with over 9 years in the industry. He covers the stock market, forex, equities, and commodities for some of the leading brands. He is also a passionate trader who operates his family account. Crispus lives in Nairobi with his wife and son.