Fed rate hike widens euro disadvantage, EUR/USD slides
The euro fell to near $1.1460 after the US Federal Reserve raised its benchmark rate by 25bps to a 3.75%-4.00% range, its first hike in three years. The move matched the ECB's September increase but widened the rate gap to 1.375 points in Washington's favour, per FXStreet. Markets now price more than four additional ECB hikes, a pace Rabobank says policymakers dislike.
Bottom line — EUR/USD is below both long-run averages after falling each session since the ECB's September 10 hike.
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Fed Chair Kevin Warsh said inflation has been 'too high ... for too long,' and updated projections show a strong majority of officials see another hike possible this year, per FXStreet.
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The ECB raised its deposit rate to 2.50% on September 10, per Reference Hub. The bank reaffirmed a data-dependent approach and won't pre-commit to further steps, FXStreet reports.
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ECB President Lagarde refused to reaffirm that markets 'understand the ECB's reaction function well,' which Rabobank construes as a hint that markets are moving faster than policymakers like.
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Anonymous sources told MNI News that any next ECB move is more likely in December than October, tempering front-loaded tightening bets, notes Rabobank's Bas van Geffen.
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Eurozone final August inflation is due Thursday, with core forecast at 2.4% — a confirmation from the flash estimate, so unlikely to move currencies, per FXStreet.