- EUR/USD remains on the back foot after calling in bears the previous day.
- Fed Chair Powell’s hawkish tone favored sellers, ECB policymakers’ signaled large rate hikes and challenged downside.
- Wall Street closed in the red, yields dropped amid risk-off mood.
- Fedspeak, US PMIs and EU/German inflation can entertain traders ahead of Friday’s US NFP.
EUR/USD begins the week on a negative note, after a two-week downtrend that refreshed the yearly low, taking offers to refresh intraday bottom around 0.9950 by the press time. In doing so, the currency major pair struggles to justify the recently hawkish comments from the European Central Bank (ECB) policymakers as markets still give high importance to Fed Chair Jerome Powell’s hawkish statements ahead of Friday’s monthly jobs report for the US.
The annual Jackson Hole Symposium appeared to have mostly marked the hawkish colors as policymakers gave high importance to taming inflation.
“Restoring price stability will take some time, require using central bank’s tools ‘forcefully’,” said Fed Chairman Jerome Powell during his much-awaited Jackson Hole speech on Friday. The policymaker also stated that restoring price stability will likely require maintaining a restrictive policy stance for ‘some time’.
On the other hand, ECB board member Isabel Schnabel, French Central Bank chief Francois Villeroy de Galhau and Latvian central bank Governor Martins Kazaks all argued for forceful or significant policy action, per Reuters.
Elsewhere, doubts over the global central bankers’ ability to tame inflation, as well as increasing the odds of the recession, also exert downside pressure on the EUR/USD prices. US Senator Elizabeth Warren said on Sunday, per Reuters, that she was very worried that the Federal Reserve was going to tip the US economy into recession. On the same line was a study presented at the Jackson Hole Symposium stating that the central banks will fail to control inflation and could even push price growth higher unless governments start playing their part with more prudent budget policies. “If the monetary tightening is not supported by the expectation of appropriate fiscal adjustments, the deterioration of fiscal imbalances leads to even higher inflationary pressure,” said Francesco Bianchi of Johns Hopkins University and Leonardo Melosi of the Chicago Fed.
Talking about the data, US Core Personal Consumption Expenditures (PCE) Price Index, mostly known as the Fed’s preferred inflation gauge, edged lower to 4.6% in July from 4.8% prior and 4.7% market forecasts. Further, the University of Michigan Consumers Confidence Index was revised upwards in August, with the final print arriving at 58.2, versus the preliminary reading of 55.1 and 55.2 expected.
Amid these plays, Wall Street benchmarks dropped more than 3.0% each while the US 10-year Treasury yields printed mild gains to end the week around 3.04%.
Looking forward, EUR/USD traders will pay attention to the US/Eurozone PMIs, as well as initial readings of the EU/Germany inflation data for fresh impulse. However, major attention will be given to Friday’s US Nonfarm Payrolls (NFP) as Fed’s Powell sounded firmly hawkish.
A clear U-turn from the 10-DMA, around 1.0005 by the press time, directs EUR/USD towards the recently flashed multi-year low surrounding 0.9900.