The USD index tumbled to the 61.8% Fibo of its post-banking crisis recovery at 102.28 and mid-April highs at 128.23 after Wednesday’s Fed and Thursday’s ECB meetings underscored the impression that the US rate hike cycle would finish soon while Europe and the UK carry on tightening.
A close below the 102.23/28 supports would raise the risk of testing the 100-week moving average, at 101.42, and 2023’s 100.80/78 double-bottom. Otherwise, a rebound toward last week’s lows and weekly kijun at 103.29/33 would be an attractive fade point.
Thursday’s US claims, retail sales, and industrial production failed to reinforce the Fed’s raised median dot plot that suggested two more 25bp rate hikes, with markets reluctant to price in even one more before cuts next year.
Thursday’s ECB rate hike came with guidance toward further tightening, given how much higher euro zone inflation is compared to the ECB’s 2% target and US inflation. That’s allowed the market to price in most of two more ECB rate hikes with a far more gradual reduction next year than implied for the Fed.
The BoE is seen hiking at least another 125bp after this week’s inflationary UK labor data and UK inflation at 8.7%.
(Randolph Donney is a Reuters market analyst. The views expressed are his own.)