The Federal Reserve’s hawkish turn prompted both Goldman Sachs and Deutsche Bank to abandon their calls that the euro will rally against the U.S. dollar.
The euro dropped as much as 1.1% to 1.1994 per dollar on Wednesday, the biggest tumble since April 2020. Policymakers signaled the Fed would boost interest rates twice by the end of 2023, which surprised the markets. Some even forecast a move next year. The currency breached 1.20, which suggests to some traders that more losses are coming.
While many dollar bears cut back short bets this week amid speculation the Fed could surprise with a hawkish view, others believed that the central bank’s long-standing belief that inflation is transitory meant it would maintain a dovish tone.
In closing out its recommendation, Deutsche Bank’s George Saravelos said there’s now “greater scope for a front-end real rate repricing in the U.S. yield curve” and also “room for higher volatility.”
Both factors are bullish for the dollar, he said, adding that “the support the Fed was providing for EUR/USD upside is no longer there”.
We love to hear new ideas from traders and want to know what you think!
If you like this topic and want to suggest future topics that you find helpful, let us know by clicking the ‘submit your feedback’ button below.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
Nothing contained in this website should be construed as investment advice. Any reference to an investment's past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.
