Euro Key Forecast

Last week, the euro gained about 1.4 percent against the US Dollar, marking the best five-day period since late May. The EUR/USD could benefit from less hawkish speeches by Federal Reserve members on Friday as policymakers enter a break with interesting comments that will shake up the market ahead of the central bank’s next rate announcement in November.

But that won’t happen for a few weeks. The European Central Bank, which sets interest rates on Thursday, is the focus for the EUR/USD. With inflation wreaking havoc on the Eurozone, the ECB should maintain its most aggressive tightening cycle in history. Policymakers must raise the Main Refinancing Rate and the Deposit Facility Rate by 75 basis points, respectively, to 2% and 1.5%.

In the absence of a surprise, the adjustments will likely have little impact on the euro. The focus will then shift to what could happen in December. There’s a 50/50 chance that another 25 basis points will be added on top of that.

Despite ongoing bond market volatility that sent US rates to multi-year highs, US stock indexes finished the week with healthy gains. The 10-year Treasury yield rose to 4.335%, its highest since November 2007. Higher interest rates tightened financial conditions, so equity traders were unfazed by the moves.

The Yen Fell

The yen fell to 149.70 per dollar overnight before surging to 145.28 within minutes, implying that the BOJ, acting on behalf of Japan’s Ministry of Finance (MOF), intervened for a second consecutive day. The yen last traded at 149.22 per dollar, down nearly 1% daily.

The US dollar gained ground against other major currencies, with the euro falling 0.32% to $0.98219.

Sterling was up 0.12% at $1.1322, off an overnight high above $1.143, after former Prime Minister Boris Johnson dropped out of the race for British Prime Minister.