ECB May Continue Its Hiking- Cycle Into 2023.

EUR/USD

EUR/USD registers a three-day rally as it extends the advance following the US Non-Farm Payrolls (NFP) report, and the exchange rate may attempt to test the September high of 1.0198 as it clears the October high of 1.0094.

EUR/USD carves a series of higher highs and lows on the back of US Dollar weakness, and data prints from the US may do little to prop up the USD as the Consumer Price Index (CPI) is anticipated to show slowing inflation.

The update to the US CPI may also influence the outlook for monetary policy as the headline and core reading are expected to narrow in October, and signs of easing price growth may push the Federal Reserve to shift gears as the central bank aims to foster a soft-landing for the economy.

Following this, speculation for a smaller Fed rate hike may keep EUR/USD afloat as European Central Bank (ECB) President Christine Lagarde reiterates that the Governing Council expects “to raise rates further,” with the head of the central bank going on to say that “withdrawing accommodation may not be enough to bring inflation back to our target” during a recent lecture.

The comments suggest the ECB may continue its hiking- cycle into 2023 as the central bank struggles to achieve its only mandate for price stability, and the Governing Council may vote for another 75bp rate hike at its next meeting on December 15 as Euro Area inflation climbs to a record high.

As a result, the advance from the September low of 0.9536 may turn out to be a key reversal in EUR/USD as it clears the opening range for November, and a further advance in the exchange rate may fuel the recent flip in retail sentiment like the behavior seen earlier this year.

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