Is the Fed Out-Hawking the ECB?

Key Points:

• The strong demand for the US dollar, driven by high US jobs data, pressures the EUR/USD.
• ECB’s hawkish stance includes recent rate hikes and signals for more, but the Fed’s aggressive approach may overshadow it.
• Technical indicators suggest bearish momentum for EUR/USD, favoring Fed policies over the ECB’s.

The EUR/USD is holding just above $1.07, well off its nine-month high of $1.1034, as pressure mounts from the US dollar’s strength. The Fed’s more aggressive stance on interest rates, fueled by stronger-than-expected US jobs data, contrasts with the European Central Bank’s approach.

The ECB has been hawkish, raising rates by 50 basis points at its February meeting, with plans for further hikes if underlying inflation persists. ECB board member Isabel Schnabel has noted that previous rate hikes have had minimal impact on inflation, and ECB policymaker Klaas Knot indicated that ongoing hikes might be necessary if inflation does not decrease.

On the other hand, the Federal Reserve remains committed to higher interest rates. Fed Chair Jerome Powell emphasized the need for further rate increases, while New York Fed President John Williams and Governor Christopher Waller underscored the ongoing strength of the labor market and the potential for higher rates.

From a technical standpoint, the EUR/USD appears skewed towards downside risk. The pair is trading below its moving averages, with the 20 SMA crossing below the 200 SMA, indicating bearish momentum. The RSI is also showing negative levels, reinforcing the market’s bias towards Fed hawkishness over the ECB’s.

In summary, while the ECB remains committed to its hawkish path, the Fed’s more aggressive approach may be overshadowing the European central bank’s efforts, influencing the EUR/USD negatively.