ECB rate hikes fuel longer recession fears in Germany, lowering EUR/USD

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EnclaveFX Ltd
Jun 28, 2023
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Around 1.0950, the EUR/USD pair has been going topsy-turvy. As investors wait for Fed chair Jerome Powell's speech for more interest rate guidance, the major currency pair is struggling to find direction.

There's a nominal loss in S&P500 futures in Asia. United States durable goods orders were better than expected Tuesday, keeping US equities in the bulls' grip. We're looking forward to a recovery in the manufacturing sector thanks to booming demand for durables.

According to the US Census Bureau, Durable Goods Orders grew by 1.7%, compared with expectations of 1% contraction. April's Durables data was 1.2%, but May's Durables data excluding defense orders has grown by 3.0% against expectations of stagnation.

Considering resilience in US Durables data, the US Dollar Index (DXY) is looking to extend its recovery above 102.62. Around 77% of CME Fedwatch predicts a 25 basis point (bp) interest rate hike.

After ECB President Christine Lagarde gave a hawkish speech at the ECB Forum of Central Banking on Tuesday, the Euro stayed in action. Lagarde said monetary policy needs to be sufficiently restrictive to tame price pressures in the Eurozone due to extremely high inflation. She further added that the effect on inflation from rising wages has recently been amplified.

The German economy is at risk for an elevated recession after business morale sank consecutively for the second time in a row. Based on the Ifo Institute's business climate index, June's figure dropped from 91.5 to 88.5.

German economic data shows a contraction in Gross Domestic Product (GDP) for the past two quarters, indicating a technical recession.

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