EUR/USD climbs to fresh weekly highs but pares some gains ahead of Powell’s speech

27/08/2022

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The shared currency reclaimed parity, back above the 1.0020 area on Friday, as the US Fed’s preferred inflation gauge shows that interest rate increases keep working, consequently weakening the greenback, ahead of Fed’s Powell speech at Jackson Hole.

The EUR/USD struck the day’s lows during the European session at 0.9946, before the common currency staged a comeback, reaching a daily high at 1.0040, as investors await further hawkish guidance from Fed officials. At the time of writing, the EUR/USD is trading at 1.0065, above its opening price.

Before Wall Street opened, the US Department of Commerce reported that the Personal Consumption Expenditures (PCE) price index for July decreased by 0.1% MoM, less than estimates of a 0.3% increase. Excluding volatile items like food and energy, the so-called core PCE, the Fed’s favorite measure for inflation, rose 0.1% MoM, vs. 0.3% foreseen. On an annual basis, headline PCE uptick to 6.3% vs. 6.2% expected, while core PCE decelerated to 4.6% from 4.7%

EUR/USD and DXY’s reaction to US data

The EUR/USD jumped from around 1.0000 to 1.0020, once the headlines hit traders’ screens, and so far has reached the 1.0040 mark. At the same time, the greenback weakened, as shown by the US Dollar Index, dropping from around 108.350 to 107.920, so far down 0.43%.

In the meantime, Europe’s financial narrative hasn’t changed. The extreme energy crisis hitting the bloc, alongside recession fears augmenting particularly in Germany,  kept euro buyers cautious from opening fresh long bets vs. the buck.

Lately, sources cited by Reuters reported that some ECB policymakers wanted to discuss a 75 bps hike for September due to further deterioration in the inflation outlook. The EUR/USD rallied sharply, from around 1.0040 to fresh daily highs around 1.0075, at 13:34 GMT.

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