Euro hits a session high as the Fed trims its rate-setting meetings
- EUR/USD climbs through 1.1150 to a session high as Fed Chair Warsh speaks.
- Fed Chair Warsh says the Fed's tightening is starting to work, citing progress.
- ECB President Lagarde faces reporters Thursday after the ECB's own decision.
Fed Chair Warsh's press conference moved EUR/USD further than the Fed's decision did. The pair climbed from the lower half of Wednesday's range through 1.1150 in three five-minute bars as he spoke, to a session high. It's trading above 1.1150, short of 1.1200.
Fed Chair Warsh said there's overwhelming agreement among policymakers that the Fed's tightening is starting to work, and that the progress encourages him. He said they held to take stock because the period ahead should bring more clarity. Traders still had a December hike near 90% priced after the statement, and EUR/USD's climb came during those answers.
He said the Fed will keep eight meetings a year, but from next autumn one won't vote on rates, and he expects six policy-setting meetings in 2028. The ECB sets rates at eight meetings a year, so the Fed's side of EUR/USD's rate gap will have fewer dates to change on. Price stability, he said in the same press conference, isn't about a fixed date on the calendar.
On the calendar
The European Central Bank (ECB) announces at 13:15 GMT on Thursday, and ECB President Lagarde takes questions at 13:45 GMT. Eurostat's first reading of euro area third-quarter Gross Domestic Product (GDP) follows on Friday at 10:00 GMT.
Thursday's 12:30 GMT US releases, third-quarter GDP and the Personal Consumption Expenditures Price Index (PCE) for September, are the first data in the period Fed Chair Warsh called information-rich. Both bear on whether the December hike traders priced arrives.
On the charts
Before the press conference, EUR/USD had given back almost half of its climb from the session low just above 1.1100. The three bars during his answers took it past the earlier high, and intraday momentum has turned up from oversold.
EUR/USD 5-minute chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Author
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
