empty
07.04.2022 02:55 PM
EUR/USD: Fed's hawkish stance and geopolitical risks

The minutes of the Fed's March meeting published yesterday turned out to be hawkish: the rhetoric of the document was quite harsh. This fact suggests that the American regulator will decide on a 50-point rate increase not only at the May meeting, but also following the results of the June meeting.

In general, the document did not become a sensation – many of the theses mentioned in the text of the protocol were voiced by representatives of the Federal Reserve after the March meeting. In addition, after the March meeting, more recent key data on the labor market and inflation were published. All these releases were on the side of the greenback, reinforcing hawkish expectations. Therefore, the minutes published yesterday only stated an already well-known fact: Fed members are ready for a more aggressive pace of monetary policy tightening.

This image is no longer relevant

Fed members signaled at the end of the March meeting that the pace of rate hikes in the current cycle will differ from previous similar cycles. In the minutes of the January meeting, this issue was developed in more detail – it stated that "the members of the Committee consider it appropriate to increase rates faster than after 2015, but on the condition that inflation does not decrease." We are talking about a three-year period of raising the rate from December 2015 to December 2018. The pace of monetary tightening during this period was indeed quite measured. The rate was first raised in December 2015, then in December 2016, then in February, March, June, July, September, and December 2017; and then in March, June, September, and December 2018. During this period, the rate was raised from 0.25% to 2.5%.

At the March meeting, the regulator was more forthright. The minutes indicate that many members of the Fed believe that a rate hike of 50 basis points at once "at one or more upcoming meetings" would be justified. Again, unless inflation in the U.S. starts to decline, which is highly unlikely.

In other words, the protocol published yesterday confirmed, in particular, the forecasts of Goldman Sachs analysts and many other experts. According to their scenario, the regulator will raise the rate by 50 points twice, in May and June. Then four increases of 25 basis points at each subsequent meeting until the end of this year.

Also, Fed members at the March meeting signaled their readiness to start reducing assets on the balance sheet of the Central Bank. Here, too, the Fed is similarly poised to realize a faster pace of balance sheet reduction than it did in the period 2017-2019. The protocol states that the regulator will begin to reduce assets on the balance sheet of the Central Bank in increments of $95 billion per month ($35 billion in mortgage-backed securities and $60 billion in U.S. government bonds). Members of the Committee came to a common opinion that the Fed can agree on a program for the sale of assets already at the May meeting. It is worth noting that most experts previously expected a reduction range of 60 to 90 billion per month. Therefore, the proposed 95 billion move allowed the dollar bulls to feel more confident throughout the market, including against the euro.

The U.S. currency is also supported by geopolitical factors. Negotiations between Russia and Ukraine are dragging on, and, apparently, no breakthrough is to be expected in the medium term. This assumption was indirectly confirmed today by the representative of the President of Turkey. He said he did not expect a major breakthrough in the negotiations between Moscow and Kyiv "in the next couple of days or even weeks." The main reason is the lack of consensus between Russia and Ukraine "on certain points of negotiations."

However, geopolitical risks are not limited to Eastern Europe. The situation in Asia is also worrisome – the "Taiwan case" is again on the agenda. The day before yesterday, it became known that Taiwan received American weapons and military equipment, U.S. Secretary of Defense Lloyd Austin said. Beijing responded with a strong protest. The official representative of the Chinese Foreign Ministry said the Pentagon's actions are undermining China-US relations and disrupting peace in the Taiwan Strait. The Chinese authorities regard the supply of American weapons to Taiwan as a violation of bilateral agreements and an infringement of the national interests of the PRC. Let me remind you that earlier, Chinese officials have repeatedly stated that the country is ready to use force to prevent movement towards the official independence of Taiwan, which is considered a breakaway province of China.

All this suggests that short positions on the EUR/USD pair are still a priority. It is advisable to use corrective upward pullbacks to enter sales. Longs, in turn, are risky, given the favorable fundamental background for the strengthening of the U.S. currency. The first target is 1.0860 (the lower line of the Bollinger Bands indicator on the daily chart). A breakdown of this support level will open the way to the annual price low, that is, to the target of 1.0806.

Irina Manzenko,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

GBP/USD Overview – June 12: Protests Against Trump and Fed Policy

The GBP/USD currency pair continued to trade very calmly on Wednesday. Naturally, when U.S. inflation data was released, we saw a brief burst of market reaction—though it didn't last long

Paolo Greco 04:07 2025-06-12 UTC+2

EUR/USD Overview – June 12: Is There Light at the End of the Tunnel?

The EUR/USD currency pair continued to trade very calmly throughout Wednesday. The market showed no reaction whatsoever to the seemingly positive news regarding U.S.-China trade negotiations. Why? Because that positivity

Paolo Greco 04:07 2025-06-12 UTC+2

Donald Trump Plans to Suppress the Uprising

For several consecutive days, protests and unrest have continued in some major U.S. cities, sparked by Donald Trump's new immigration policy. This time, the U.S. President has decided to deport

Chin Zhao 00:35 2025-06-12 UTC+2

EUR/USD. In the Shadow of the Trade Deal: U.S. Inflation Report Pressures the Greenback

A mixed U.S. inflation report pressured the greenback. The dollar index returned to 98.00, while the EUR/USD pair refreshed its weekly high, rising to 1.1491. Additional pressure on the U.S

Irina Manzenko 00:35 2025-06-12 UTC+2

Will the Dollar Maintain the Status Quo?

To make accurate predictions about the future, one must examine the past. The more than 10% rally in EUR/USD since the beginning of the year has been driven by four

Marek Petkovich 00:35 2025-06-12 UTC+2

XAU/USD. Analysis and Forecast

Currently, the price of gold remains confined within a weekly range. The key factors supporting price growth include a decision by the U.S. federal appellate court to uphold President Donald

Irina Yanina 18:35 2025-06-11 UTC+2

USD/JPY. Analysis and Forecast

At this stage, the Japanese yen continues to trade within an intraday consolidation range, approaching the two-week low against the U.S. dollar reached yesterday. The main factors influencing the movement

Irina Yanina 18:33 2025-06-11 UTC+2

EUR/GBP. Analysis and Forecast

However, at this point, it lacks follow-through buying, despite a fundamental backdrop that suggests the path of least resistance for spot prices lies to the upside. The weak performance

Irina Yanina 11:38 2025-06-11 UTC+2

Results of the Second Round of U.S.–China Negotiations

The United States and China have concluded two days of important trade negotiations with a plan to resume the flow of sensitive goods — this framework now awaits approval from

Jakub Novak 11:32 2025-06-11 UTC+2

The U.S. and China: A Small Step Forward. What's Next? (Potential for a reversal and decline in EUR/USD and NZD/USD pairs)

Representatives from the United States and China have reached a framework agreement on trade following two days of high-level talks in London. But why isn't there a sense of euphoria

Pati Gani 09:52 2025-06-11 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.