US Dollar Control is Strong
Expectations about the future of the American interest rate increase followed a series of consecutive positive figures for the sectors of the American economy. It also helped the price of the US dollar to achieve more gains against the rest of the other major currencies. The share of the euro currency pair against the US dollar EUR/USD from that collapse to the minimum support level of 1.0536 for the pair currencies for nearly two months closed last week’s trading around those losses.
The collapse came despite indications from the officials of the European Central Bank about the future tightening of the bank’s policy to face the record inflation that affected all bloc countries. In this regard, board member Ignazio Visco said that the European Central Bank will raise interest rates when necessary to reduce inflation to 2%.
Visco, who also heads the Italian central bank, said in a televised interview ahead of this week’s trading that it was currently impossible to determine the level of borrowing costs that would have to reach this goal. He added in Bengaluru, India, where he was attending a meeting of a group of 20 finance chiefs and central bank governors, that policy would depend on shifts in the economy, with the future course determined on a meeting-by-meeting basis. Fisco added: “I don’t think we can now determine the final price, not even if it is 3.5%, 3.25% or 3.75%, because it really depends on the data.” And our goal is to return to an inflation rate of 2% in the medium term. And if we need to be more restrictive, we will be more restrictive.”
Policymakers at the European Central Bank raised borrowing costs by 300 basis points since July, raising the interest rate on deposits to 2.5%. They intend to raise another half point in March and indicated that the tightening will not stop at this point. France’s Francois Villeroy de Gallo recently suggested that the peak rate may not be reached until September. Some of Visco’s colleagues, including the head of the German central bank, argued that more “significant” steps would also be needed in the second quarter – a phrase policymakers typically use to refer to a 50 basis point hike.
The governor of the Italian central bank offered a slightly different interpretation, indicating that finding a consensus on the next path may be more difficult. The European Central Bank’s case for strong action was strengthened this week after a report showed that core inflation was proving firmer than expected, raising the risk of a wage-price spiral in the 20-nation eurozone. The official added by saying: “We have to make sure that core inflation will not remain at this high level”, pointing to the tightening of labor markets in some parts of the region as something that calls for close monitoring. And this could lead to wage increases beyond what is consistent with the medium-term inflation rate of 2%, which is our target. That’s why we’re watching it with great interest – but I’m not worried.” Visco also said the “gradual reduction” of the balance sheet that will begin when the European Central Bank starts issuing bonds from its 5 trillion euro ($5.3 trillion) portfolio in March is “necessary.” He added, “We have to decide when and where to stop, but for now, I think we’ve started appropriately.”
Visco and his G20 European colleagues arrived in India after the European Central Bank’s retreat in Lapland to assess progress in the development of the digital euro. He said that the officials are “satisfied” with the technical work done so far, and stressed the need to be in close contact with the European Commission. He also said: “Much of the decision to move to a digital currency is a political decision.” “That’s why it’s so important to have a clear dialogue.”
While the official decision on whether work on the project will move to the next phase won’t be made until October, Fisco said he “expects” to move forward.
- The downward shift is still the strongest and dominates the performance of the euro currency pair against the US dollar EUR/USD.
- The losses moved the technical indicators towards oversold levels.
- It may be considered to take advantage of the buying opportunities from the support levels 1.0490 and 1.0400 respectively.
The bulls’ initial control over the direction will not return without moving towards the 1.0785 resistance level again. The Euro-Dollar pair today is awaiting the announcement of the reading of the US durable goods orders and any indications from the monetary policy officials of the US Federal Reserve Bank and the European Central Bank.
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