EUR/USD Price Analysis – Aug 28, 2023

Daily Price Outlook

Despite the European Central Bank's (ECB) adoption of a more hawkish stance, the EUR/USD pair is still struggling. While it initially managed to breach the 1.0800 level once again, it concluded the week in the red for the fifth consecutive time. This means that even though the ECB is adoption a hawkish stance, the Euro is not gaining much ground against other currencies.

However, the reason for its bearish trajectory can be attributed to the heightened expectations of another interest rate hike by the Federal Reserve in the year 2023. This development has pushed the US dollar higher, subsequently contributing to the losses observed in the EUR/USD pair.

ECB's Inflation Focus and Rate Hike Caution: Potential Impact on EUR/USD Pair

It is worth noting that during the Jackson Hole Symposium, ECB President Christine Lagarde emphasized their ongoing battle with inflation. She underlined the essential role of central banks in maintaining economic stability by keeping interest rates at elevated levels until the targeted 2% inflation rate is achieved. Simultaneously, ECB's Martins Kazaks cautioned against prematurely stopping rate hikes, emphasizing potential risks.

In simpler terms, the ECB is prioritizing the prevention of rapid price escalation, which is why they are opting to maintain higher interest rates for the time being. Thus, this news holds the potential to exert a positive influence on the EUR/USD pair.

Fed Chairman Powell Signals Potential Interest Rate Increase: Impact on EUR/USD Trend

Across the ocean at the Jackson Hole Economic Symposium, Fed Chairman Jerome Powell stated their readiness for more interest rate increases if needed. This stance, driven by strong growth and job conditions, could make the US dollar more attractive against the Euro, particularly if data remains positive. However, Philadelphia Fed President Patrick Harker disagreed, favoring stable rates to gauge their economic impact.

Meanwhile, Cleveland Fed President Loretta Mester supported higher rates to curb inflation, citing an improving economy. Furthermore, the UoM's Consumer Confidence Index dropped in August, potentially strengthening the US dollar further, as Powell's willingness to raise rates based on growth could enhance the dollar's appeal. This contributed to the EUR/USD pair's downward trend.

EUR/USD - Technical analysis