Greg Gibbs, Analyst at Amplifying Global FX Capital, suggests that the market has been trading EUR/USD as if it has factored in near-term rate hikes in the USA, and is looking ahead to a time when the ECB may consider raising rates.
“Yesterday, the ECB reiterated its rate guidance first stated in July, that it does not expect to raise rates “at least through the summer of 2019”. What appears more important to the market is how fast the ECB may raise rates from around August/September next year. And whether the Fed may have finished hiking by then.”
“These forward-looking rate hike expectations for the ECB have recovered since their recent low in mid-August, helping explain a recent recovery in the EUR. However, they did not rise further after the ECB meeting.”
“Forward-looking Fed rate hike expectations have been low, suggesting that the market sees the Fed hiking cycle as likely to be close to finished by Q3 next year. However, these expectations did rise significantly after the US payrolls report on Friday included higher than expected wages growth. As such, this comparison suggests further gains in EUR/USD may stall.”