Mon, February 06, 2023

Here is Why the World is Panicking Over Fed’s Tightening

Here is Why the World is Panicking Over Fed’s Tightening

The US currency is surging due to Fed tightening fears and a weak euro. Since Thursday, the euro and the yen have fallen, while US bond rates have notably firmed, as worries of a Fed rate hike rise as we draw closer to May’s FOMC meeting. As a result, the dollar index has risen significantly, climbing 0.50 percent to 100.33 on Thursday. The dollar index increased marginally on Friday and is currently trading at 100.70 in Asia. Resistance around 100.90 is near, and a break of 101.00 would imply more advances into the 103.00 pandemic-panic highs in 2020. Between 99.40 and 99.55 is where support is found.

The Boost in The Market

The EUR/USD was down on Thursday due to the ECB policy decision, which signaled little to no intention of boosting the pace of tightening or withdrawing QE sooner. EUR/USD fluctuated between 1.0750 and 1.0900 before settling at 1.0830, down 0.60 percent. On Friday, the euro weakened marginally before falling 0.20 percent in Asia today to 1.0785. The euro is seriously testing the multi-decade support line at 1.0800. A daily close below it will heighten bearish sentiments, and a weekly closing below it will be a strong bearish indicator. Initial objectives are 1.0600 and 1.0300, with a drop through 1.0000 a possibility. Rallies around and around 1.0950 should have little trouble finding buyers.

Fears over Ukraine and energy and a dovish ECB make a long-term gain in the euro difficult right now. The prognosis will most likely shift only if the US/Core-Europe rate divergence narrows dramatically.

Sterling is now trading around 1.3030, over 1.3000, as markets price in the Bank of England’s May rate rises, and significant EUR/GBP selling supports GBP/USD. However, rallies were at the 1.3150 area. The danger of a total collapse of 1.3000, which should first target 1.2700, remains unbalanced. As risk aversion rises and both central banks are regarded as being too sluggish to act on inflation, the Australian and New Zealand currencies have both experienced significant losses in recent sessions.

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