EUR/USD Drops as The European Central Bank (ECB) Implements Another Rate Hike.

EUR/USD

EUR/USD drops from a fresh monthly high (1.0094) as the European Central Bank (ECB) implements another 75bp rate hike, and fresh data prints from the US may fuel the recent fall in the exchange rate as the Personal Consumption Expenditure (PCE) Price Index is expected to reflect sticky inflation.

EUR/USD tries to maintain the advance from earlier this week as the ECB emphasizes that the Governing Council has “made substantial progress in withdrawing monetary policy accommodation.”

This development is with President Christine Lagarde and Co.’s partial interest in pursuing a restrictive policy as “future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.”

Therefore, EUR/USD may encounter headwinds in the rest of the year as the Federal Reserve intends to move its hiking cycle into 2023.

The update to the US PCE report may encourage the central bank to retain its existing approach in combating inflation as the core reading, the Fed’s preferred gauge for inflation, is expected to increase to 5.2% in September from 4.9% per annum the month prior.

Another uptick in the core PCE may compel the Federal Open Market Committee (FOMC) to implement another 75bp rate hike, and EUR/USD may struggle to hold its ground ahead of the Fed interest rate decision on November 2 as the near-term recovery in the exchange rate seems to be stalling ahead of the September high (1.0198).

The failure to extend the recent series of higher highs and lows may keep EUR/USD within the September range, while the recent flip in retail sentiment seems to have been short-lived as traders have been net-long the pair for most of 2022.

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