EUR/USD: Fed more significant than ECB - Nomura

Analysts at Nomura explained that the expectations for a Fed hike at the next meeting on 15 March should be an important driver of EUR/USD in the near future.

Key Quotes:

"A March rate hike by the Fed looks increasingly likely, and the market has priced the likelihood of a March hike well.

Nonetheless, the Fed’s communication on the future path of policy rates is still important for USD momentum, as the market has not yet priced three hikes by year-end.

Historically, EUR/USD tends to react more to short and medium-term rate differentials than long and super long-term rate differentials.

The ECB’s next step to withdraw monetary stimulus should be tapering, not rate hikes, and the impact on the shorter end of the curve should be limited.

In fact, even the 5yr rate spread between USD and EUR has recently been dominated by the movement of USD rates.

Central bank meetings are scheduled on both sides over the next two weeks, and the Fed’s stance should be much more significant for the near-term EUR/USD trajectory at the moment."