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EUR/USD eyes more weakness below 0.9950, Fed policy eyed

The EUR/USD pair witnessed selling pressure after testing the parity in the New York session. The asset is established below the magical figure of 1.0000 and is expected to display more weakness after surrendering the cushion of 0.9950. A downside break below 0.9950 will result in a sheer fall as the asset will print a fresh two-week low and will test the two-decade low at 0.9864.

The downside bias is gaining limelight as the Federal Reserve (Fed) is going to tighten its policy further. The current interest rates stand at 2.25-2.50% and a third consecutive 75 basis points (bps) interest rate hike will push them above 3%. Well, considering the less responsiveness of the inflation rate towards the current pace of hiking borrowing rates, a higher-than-expected extent of a rate hike cannot be ruled out. The Fed could step up its policy rate by 100 bps, thanks to the tight labor market and robust retail demand.

Apart from that, the guidance on interest rate peaks will be extremely crucial. A recent survey from Financial Times claims that the interest rates by the Fed will top around 4-5%. And, a path to a ‘neutral’ approach will be seen beyond 2023 after a slowdown in the price pressures for several months.

On the Eurozone front, the speech from European Central Bank (ECB) President Christine Lagarde has cleared that the agency is committed to bringing down the price pressures ‘whatever it takes and won’t let build a lasting inflation problem.  The central bank will scale up interest rates further and their quick move towards a rate hike cycle shows their commitment. While ECB Governing Council member Madis Muller infuses optimism into eurozone investors on Tuesday, citing that “rates are far from the level that would slow the economy”

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