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On August 10, EU High Representative for Foreign Affairs and Security Policy Kallas stated in a media interview that any agreement between the United States and Russia to end the conflict between Ukraine and Ukraine must include Ukraine and the European Union. Kallas stated that any agreement between the United States and Russia must include Ukraine and the European Union, as it concerns the security of Ukraine and all of Europe. Kallas also announced that an emergency meeting of EU foreign ministers will be held on August 11 to discuss next steps.Azerbaijan said its energy cooperation with Ukraine would not be interrupted by the Russian attack.On August 10th, the carry trade saw a resurgence among emerging market investors, fueled by bets that the Federal Reserve will begin cutting interest rates next month, weakening the dollar and boosting interest in high-yielding currencies. Asset managers from Neuberger Berma to Aberdeen Group are increasing their exposure to currencies such as Brazil, South Africa, and Egypt. They believe a weaker dollar and easing volatility create a fertile environment for this strategy, in which traders borrow lower-yielding currencies and buy higher-yielding ones. Earlier this year, these trades generated double-digit returns, but the momentum took a breather in July as the dollar rebounded. Recent weak US jobs data has reinforced expectations that policymakers will be forced to cut interest rates next month to avoid a recession, fueling a renewed surge in carry trades. Many institutions, from DoubleLine to UBS, have recently joined the bearish chorus on the dollar, stating that "the bearish narrative for the dollar has resurfaced." “The likelihood of a significant dollar rebound is very limited, while overall global growth remains solid,” said Urquieta, co-head of emerging market debt at Neuberger Berman. He prefers carry trades in South Africa, Turkey, Brazil, Colombia, Indonesia and South Korea.German Chancellor Merz: "Hope and assume" Zelensky will attend the Alaska talks.U.S. Vice President Vance: The United States will maintain dialogue with Ukraine and Zelensky.

EUR/USD Struggles Below 1.0700 As US Data Fuel Hawkish Fed Predictions, Lagarde of the ECB Supports Higher Interest Rates

Daniel Rogers

Feb 16, 2023 14:51

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The EUR/USD pair approaches 1.0690 but struggles to prolong the recovery from late Wednesday to early Thursday. Notwithstanding, the major currency pair dropped the most in a week as US data bolstered Fed bets and pushed US Treasury bond yields and the US Dollar to multi-day highs. Christine Lagarde's recent hawkish comments on the European Central Bank (ECB) looked to have strengthened prices.

 

In spite of this, US 10-year Treasury bond yields surged to a fresh six-week high, and the US Dollar Index (DXY) also climbed to a 1.5-month high, as key US data suggested the Federal Reserve (Fed) may increase interest rates further.

 

As announced on Wednesday, January US Retail Sales growth increased to 3.0% from 1.8% expected and -1.0% earlier. In addition, Retail Sales excluding Automobiles grew by 2.3% during the same month, exceeding experts' projections of growth of 0.8%. Similarly, the New York Empire State Manufacturing Index for February increased to -5.8 from -18.0 and market forecasts of -32.9. Alternately, US Industrial Production reported 0.0% MoM figures for January, contrary to analysts' expectations of 0.5% and prior readings of -0.7%, but failed to quell hawkish attitude surrounding the Federal Reserve's (Fed) next move.

 

According to Reuters' FEDWATCH tool, market wagers on the Fed's next moves indicate that US central bank rates will peak around 5.25 percent in July, as opposed to the Federal Reserve's December prediction of 5.10 percent.

 

Lagarde of the ECB, on the other hand, stated that despite the fact that the majority of indicators of longer-term inflation expectations are currently hovering around 2%, these indices require constant monitoring. The policymaker stated, "Price pressures remain elevated, and underlying inflation is elevated," while signaling her intent to increase rates by 50 basis points at the March meeting.

 

Wall Street benchmarks concluded the trading day with small increases, but S&P 500 Futures are reluctant to follow suit.

 

In the near future, the ECB's monthly speech and several ECB speakers will complement the secondary US housing market, industrial activity, and producer pricing data to create an intriguing day.


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