EURUSD Stays Near 1.00 Ahead of ECB Meeting

By Peter Bukov|

Published: September 08 2022, 07:55 GMT+0

EURUSD Stays Near 1.00 Ahead of ECB Meeting

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Wednesday seems like a classic short-squeeze anti-trend kind of day as US equity indices surged strongly, along with the EURUSD pair, which briefly jumped above parity, completely reversing previous daily losses.

EU suffers from high energy prices

The EUR/USD pair approached the 0.9859 low from December 2002 before bouncing back; it is again struggling to restore parity. However, the demand for the shared currency will probably be constrained by the European energy crisis. High inflation in the EU is being pushed up by soaring costs that are having a negative impact on businesses and individuals.

In a letter to Ursula Von der Leyen, president of the European Commission, European non-ferrous metal manufacturers asked for immediate EU action to stop persistent deindustrialization. Producers stated that “the power crisis has already driven 50% of the EU’s aluminum and zinc capacity offline.”

Vladimir Putin, the president of Russia, quickly responded by stating that Moscow is constructing new gas pipelines, some of which travel via Mongolia to China. Additionally, he said that the G7’s cap on oil prices “would be an extremely dumb move” and that they would not provide “anything” if it were against Russian economic interests. “No fuel oil, bo gas, no coal, or anything else.”

ECB meeting looms

The European Central Bank, which is generally anticipated to hike interest rates once again in an effort to battle inflation that is swiftly reaching double digits, will be the market’s major focus on Thursday.

With inflation at record highs and the reduction in Russian gas supply driving up energy prices, a rate increase of 50 basis points—which would match the increase from July—is the most likely course of action. However, there is a compelling argument for the ECB to be even more aggressive and implement its largest ever rate increase of 75 basis points.

Volatility will likely be elevated after the decision, influencing the EURUSD pair and the DAX index the most.