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The EUR/USD Parity to Fade as USD Trades Upwards.

The EUR/USD Parity to Fade as USD Trades Upwards.

London, Thursday, 14 July 2022

On Thursday, selling temporarily assisted in the price breaking through parity, placing additional pressure on the EURUSD.

As traders attempt to price in the widening rate differences between the Eurozone and the US, the EURUSD has been steadily moving lower.

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Traders have hurriedly priced in a 100 basis point hike for the Fed in July this week, despite the fact that the ECB has yet to make any moves at all.

The stage seems set for the Fed to potentially raise interest rates from 75 to 100 after yesterday's CPI data and the Bank of Canada's 100 bps rate hike. Christopher Waller of the Fed, however, made a suggestion that the market might be anticipating things too much by pricing in a rate increase of 100 basis points.

Rate discrepancies and recession worries have recently had a significant negative impact on the EURUSD, making the difference in policy trajectories more pronounced by the day. The European Central Bank (ECB) will hold its July policy meeting the following week.

At this meeting, the central bank is anticipated to announce its first rate increase in 11 years. With an increase of just 25 basis points from the current ECB deposit rate of -0.50 percent, the ECB would lag well behind competitors like the Fed, Swiss National Bank, and Bank of Canada in the drive toward tighter policy.

Geopolitical unpredictability within the Eurozone is another difficult headwind, especially in light of former ECB President Mario Draghi's departure as Italian prime minister this afternoon.

The ECB's fragmentation discussion continues to revolve on Italy as obstacles for Lagarde and company loom.

The ECB's Draghi famously promised to do "whatever it takes" to maintain the Euro, but it's possible that Jerome Powell in Washington may decide the future of the currency.

(Source: Trading Economics // Edit and reporting by: The Decision Maker – Finance editors)


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