Market participants will gain further important insight today into current policymakers thinking when FOMC Chairman Jerome Powell delivers his semi-annual testimony on monetary policy at 15:00 GMT. Risks have become more titled to the downside for EUR/USD in the near-term, thus, a break below 1.10 is on the cards, economists at MUFG Bank report.
Fed Chair Powell to provide more insight into Ukraine impact on policy
“We expect Fed Chair Powell to acknowledge the fresh uncertainty to the economic outlook posed by the Ukraine conflict which favours more caution when setting monetary policy in the near-term. However, the main message from the Fed Chair is still likely to be hawkish providing justification for the Fed to start raising rates later this month.”
“The US economy is likely to be less negatively impacted by the fallout from the Ukraine conflict than the European economy.”
“Market participants will be also watching closely to see if Fed Chair Powell provides more details over the plans to begin shrinking the balance sheet. It creates the potential for more policy divergence to open up between the Fed and ECB who we expect to delay tightening plans.”
“A break back below the 1.1000-level now appears much more likely.”
See: EUR/USD to drop towards 1.10 unless heartening news of a ceasefire in Ukraine – ING