Top Story

EUR/USD surges as dollar falls on Fed rate hike doubts

The US dollar was once again pressured on Tuesday afternoon as ongoing doubts about further interest rate hikes by the Federal Reserve were intensified by dovish comments from a key Fed official. Fed Governor Lael Brainard said in a speech that the central bank’s intentions to reduce its balance sheet would begin “soon.” However, Brainard went on to say that "the neutral level of the federal funds rate is likely to remain close to zero in real terms over the medium term. If that is the case, we would not have much more additional work to do on moving to a neutral stance." In other words, she indicated that the Fed may not be hiking interest rates for much longer.

These dovish comments come at a time when concerns about low inflation in the U.S. have already begun to erode expectations of an aggressive pace of monetary policy tightening by the Fed. Markets are now expected only slightly more than a 50% likelihood of a third rate hike this year. These expectations are significantly down from previous months.

Meanwhile, as the US dollar continues to be weighed down by lowered expectations of further rate hikes, the euro shared currency has been strengthening on speculation regarding a potentially hawkish turn by the European Central Bank. This could include impending ECB tapering in the wake of Mario Draghi’s recent comments on rising inflation. This potentially hawkish turn by the ECB has been viewed in stark contrast against increasing Fed doubts, which have helped propel EUR/USD to new highs.

From a technical perspective, EUR/USD rose to re-test the 1.1450 resistance area on Tuesday as the dollar fell, reaching a new 14-month high in the process. This resistance area was just hit in late June before a sharp pullback. EUR/USD is currently in a strong uptrend, and any upside breakouts may be considered confirmed continuations of that uptrend. With further Fed-driven dollar-weakening combined with continued euro support, a breakout above the 1.1450 area should next target key resistance around 1.1600.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.