EUR/USD soars towards 1.0570s and retraced to 1.0550 post-Fed 50-bps rate hike

• The EUR/USD is gaining some 0.28% on Wednesday’s session.
• The Federal Reserve hiked 50-bps for the first time in 2022.
• The EUR/USD seesawed around the 1.0530s-1.0570s to the headline.

The EUR/USD rallied as the Federal Reserve decided to hike rates by 50-bps and also announced the beginning of its Quantitative Tightening (QT) program. At the time of writing, the EUR/USD is trading at 1.0554, some 0.34% higher in the day, as traders prepare for Fed’s Jerome Powell press conference.

Key remarks of the FOMC monetary policy statement

The Federal Open Market Committee said that inflation remains elevated, reflecting supply and demand imbalances, pandemic-related. The committee emphasized that inflation is “expected to return to its 2% objective and the labor market to remain strong with appropriate monetary policy firming.” The US central bank reiterated that they would remain “attentive to inflation risks.”

The Fed acknowledged the negative print in Q1’s GDP and said that “household spending and business fixed investment remained strong.”

Regarding the Ukraine-Russia war issues, the Fed expressed that it “is causing tremendous human and economic hardship.” Furthermore, they added that “Implications for US economy highly uncertain but in the near term invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”

They also announced the reduction of the balance sheet on June 1. They will initially cap US Treasuries by $30 billion per month. Regarding agency debt and mortgage-backed securities (MBS), the Fed will reduce it by $17.5 billion per month. In both cases, the cap will be lifted after three months, as US Treasuries reduction will hit $60 billion, while the MBS cap will increase to $30 billion.

EUR/USD Reaction to the headline

The EUR/USD dipped towards 1.0530, then rallied sharply towards 1.0573, followed by a retracement towards current levels around 1.0553 as market players get ready for the press conference of the Federal Reserve Chairman Jerome Powell.

Federal Reserve Chairman Jerome Powell Press conference: here