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European session review: USD advances after Fed chair Powell’s hawkish comments

TimeCountryEventPeriodPrevious valueForecastActual
07:00GermanyRetail sales, real adjusted January-5.3%2%-0.3%
07:00GermanyRetail sales, real unadjusted, y/yJanuary-6.4%-6.1%-6.9%
07:00GermanyIndustrial Production s.a. (MoM)January-2.4%1.4%3.5%
10:00EurozoneEmployment ChangeQuarter IV0.3%0.4%0.3%
10:00EurozoneGDP (QoQ)Quarter IV0.4%0%0%
10:00EurozoneECB President Lagarde Speaks    
10:00EurozoneGDP (YoY)Quarter IV2.4%1.9%1.8%

USD appreciated against other major currencies in the European session on Wednesday as investors reassessed the Federal Reserve's rate hike path after hawkish remarks of its chairman Jerome Powell.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged up 0.10% to 105.72.

Testifying before the Senate Banking Committee on Tuesday, Powell stated that strong economic indicators will likely prompt the U.S. central bank to hike interest rates more than previously anticipated to tame inflation. "If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes," the Fed’s chair stated. 

The hawkish comments of Powell forced markets to re-set their near-term rate expectations. According to the CME FedWatch Tool, the probability of a 50-basis-point rate rise at the Fed’s March meeting increased to 70.5% this morning from 27.7% before Powell’s comments. In addition, markets now see the Fed's terminal rate to be in the 5.50-5.75% range versus 5.25-5.50% earlier this week. 

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