EUR/USD eyes sheer weakness below 0.9800 on Fed’s hawkish guidance

• EUR/USD is expecting more weakness below 0.9800 on hawkish guidance by the Fed.
• Fed’s Powell has announced a third consecutive rate hike by 75 bps to tame inflation sooner.
• The interest rates are seen at 4.6% by the end of 2023

The EUR/USD pair has displayed a less-confident pullback after refreshing the multi-year low at 0.9813 in the late New York session. The fragile pullback is expected to demolish sooner and the asset will resume its downside journey. A decisive slippage below the critical support of 0.9813 will drag the asset with full power towards the south.

Investors had already discounted the announcement of the third consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed). However, the delivery of extreme ‘hawkish’ guidance on interest rates to respect the objective of bringing price stability has weakened the risk-perceived assets. What is killing the market mood is the escalation in interest rates target and jobless rates, and the unavailability of a time period in which the inflation chaos will be fixed.

Fed chair Jerome Powell is seeing interest rates at 4.6% by the end of 2023. The guidance has shifted much higher from 3.8%. Also, the Unemployment Rate is seen higher at 4.1%. Big tasks come with big sacrifices and the economic growth will face severe pain from the pace of hiking interest rates. No doubt, Fed’s Powell and his colleagues are following the pattern adapted by Fed’s Paul Volcker four decades ago.

On the Eurozone front, the German government is exploring its all measures to make sure that the administration must have sufficient energy inventories to cater to the elevated demand during the winter season. The government has promised to bail out the giant German gas importer Uniper but taking a 30% stake in the board. The company delivered extreme losses after Russia cut off gas supplies to Germany deliberately. 

Also, the European Central Bank (ECB) is providing hawkish guidance on interest rates so that the higher inflation rate should not settle in the economic behavior.