The likely slowdown in Fed tightening will benefit the EUR/USD
EUR/USD continues to rise after a rough start to the week. The exchange rate is supported by some dollar fragility as the Fed Minutes confirmed Wednesday evening that the FOMC would be ready to put the brakes on monetary tightening.
Investors’ attention now turns to the ECB minutes to be published this afternoon.
Unlike the Fed Minutes, the ECB Minutes could confirm a continuation of the pace of monetary tightening as inflation continues to accelerate (cautiously) across the Atlantic since early summer.
The background outlook for EUR/USD, which has been undeniably bearish until recently, is now becoming more mixed as the ECB may become more aggressive than the Fed in its monetary tightening from now on.
However, it is not yet certain that the dollar has reached its peak, because it is possible that the Fed will raise interest rates higher and longer than expected. The Fed could raise its rates above the final interest rate currently expected by operators, which is 5%, if inflation and wages continue to grow at too high a level. The following economic data will therefore be decisive.