Euro Surges Against US Dollar as Fed Raises Interest Rates, Projects One More Rate Hike

Key Takeaways

• The US Federal Reserve has raised interest rates by 0.25%, marking its ninth hike since March 2022.
• The Federal Open Market Committee has expressed caution about the recent banking crisis and future increases that are not assured, but will depend on incoming data.
• The ECB President, Christine Lagarde, has stated that a “robust strategy” is essential to bring inflation back to 2% over the medium term.

Overview

The Euro is surging against the U.S. Dollar late Wednesday, following the U.S. Federal Reserve’s decision to raise interest rates by a quarter of a percentage point as expected. The Fed also projected at least an additional interest rate increase of 25 basis points by the end of 2023.

At 19:00 GMT, the EUR/USD is trading 1.0878, up 0.0108 or +1.00%. The Invesco CurrencyShares Euro Trust ETF (FXE) is at $100.47, up $1.05 or +1.06%.

The EUR/USD was higher ahead of the Fed announcements at 18:00 GMT, following comments from European Central Bank President Christine Lagarde that inflation is “still high.”

Federal Reserve Raises Interest Rates, Expresses Caution About Future Hikes

The Federal Reserve has increased interest rates by a quarter of a percentage point, marking its ninth hike since March 2022.

However, the rate-setting Federal Open Market Committee expressed caution about the recent banking crisis and noted that future increases are not assured and will depend largely on incoming data.

The FOMC’s post-meeting statement indicates that the central bank may be nearing the end of its rate hiking cycle, but Fed Chair Jerome Powell warned that the inflation fight still had a way to go and could be “bumpy.”

Euro Trades Higher Against US Dollar on ECB President Lagarde’s Comments on Inflation

The euro was trading higher against the U.S. Dollar before the Fed announcements, following comments from the European Central Bank President Christine Lagarde that inflation is “still high.” Lagarde noted that a “robust strategy” is essential to bringing inflation back to 2% over the medium term.

Her comments followed remarks from German central bank chief Joachim Nagel, who said that the fight against high inflation “is not over,” while ECB Chief Economist Philip Lane took a more dovish tone, saying that underlying inflation measures will ease over time.

The ECB recently raised interest rates by a further 50 basis points, and Lagarde noted that the rate path is data-dependent in a particularly uncertain environment.

Daily EUR/USD Technical Analysis

Strong buying pushes EUR/USD higher, challenging the long-term 50% level at $1.0943, with potential to extend rally to Feb. 2 main top at 1.1033. The nearest support is at 1.0775, also a 50% level.

For a look at all of today’s economic events, check out our economic calendar.