According to Reuters, European Central Bank (ECB) policymaker Joachim Nagel stated on Monday that monetary policy signals are clearly moving in the direction of more tightening and that they will have “a way to go” in terms of future rate hikes.
Nagel went on to suggest that the Euro system’s balance sheet must be drastically reduced in the coming years.
Nagel ECB Policy market’s reaction
These remarks appear to have had little effect on the Euro’s performance against its rivals. As of this writing. The EURUSD pair was trading at 1.0900, down 0.1% for the day.
What is evident is that, at this juncture, major currencies (particularly the EURUSD) are extremely vulnerable to changes in short-term rate differentials, owing to the uncertainty surrounding the larger picture.
We anticipate the difference between ECB and Fed rates to decrease further in the second half of this year and into 2024, with the 1-year rate divergence narrowing even more than it did in 2020, when it pulled EURUSD beyond 1.20.
Even if rates begin to converge, it is doubtful that a new significant Euro rally would begin without better growth.
https://voiceoftraders.com/analysis/eurusd-fell-below-1-0900-during-the-european-morning
