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EUR/USD Swings Wildly Post Key Central Bank Decisions: Downside Bias Taking Hold

Published 22/03/2024, 11:51
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  • Fed remains on course for 3 interest rate cuts this year.
  • Meanwhile, SNB has surprised the market with an interest rate cut.
  • And, the Bank of England won't rush a pivot.
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  • Key Central Banks' decisions have dictated the financial markets this week. The Bank of Japan took a historic step by raising interest rates by a symbolic 0.1%, the first increase since 2007.

    However, the market expected a more significant move, causing the Japanese yen to weaken further.

    Meanwhile, the Federal Reserve and the Bank of England left rates unchanged as anticipated. Surprisingly, the Swiss National Bank decided to cut interest rates, leading to the Swiss franc's weakening.

    EUR/USD on a Wild Ride

    The Fed's meeting was closely watched, but no pivot date was announced, leaving the EUR/USD pair in uncertainty.

    Although rates were expected to remain unchanged, the overall sentiment was dovish due to the Fed's announcement of a slower reduction in its balance sheet. While there's no official confirmation, the market speculates a pivot in June.

    As a result, the currency pair experienced volatility, rebounding strongly after the meeting but retracing during the following session. Ultimately, the rate remained almost unchanged from Wednesday, giving a neutral impression.

    If selling pressure persists, the next target is the support level around 1.08. Breaking this level could lead to a move towards the demand zone near 1.07. EUR/USD 5-Hour Price Chart

    Why Did the SNB Cut Interest Rates?

    The biggest surprise this week was the Swiss National Bank's decision to cut interest rates by 25 bps, with the market consensus anticipating no move.

    This is not the first time the SNB has surprised the market. These types of unsignaled decisions are not uncommon with the Swiss monetary policy.

    The main argument is inflation remaining on target and its projection, which assumes stabilization in the coming years.

    Swiss National Bank Rate Decision

    In the coming months, inflation dynamics will invariably remain key, and in a situation where we see continued disinflation, it is not unlikely that we will see another previously unsignaled reduction.

    Bank of England to Pivot Soon?

    Yesterday's meeting of the Bank of England did not bring much change in terms of current monetary policy, as confirmed primarily by the results of the vote: 8 members in favor of leaving current levels and 1 in favor of cuts. Bank of England Decision

    "Monetary policy will need to remain restrictive for a sufficiently long time to bring inflation back to the 2 percent target on a sustainable basis in the medium term,"

    This statement clearly reflects the board members' stance on current policy. It suggests that the BOE is unlikely to take proactive measures, and any rate cuts may only occur after similar actions by the ECB and the Fed.

    ***

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    Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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