EUR/USD flirts with parity even as ECB, Fed’s Powell rocked the boat, US inflation eyed

• EUR/USD traders take a breather after a volatile day.
• ECB hiked interest rates by 75 bps, President Lagarde signalled more rate lifts.
• Fed’s Powell highlighted the determination to tame inflation, put growth below trend and balance labor market.
• Absence of major data from EU/US could restrict moves, next week’s US CPI in focus.

EUR/USD remains sidelined near the 1.0000 level, picking up bids of late, as traders catch some rest after an eventful day. That said, the European Central Bank’s (ECB) monetary policy announcements and Fed Chair Jerome Powell’s speech offered a volatile day while a lack of major data seems to restrict the major currency pair’s moves during Friday’s Asian session.

On Thursday, the European Central Bank (ECB) matched the market’s expectations by announcing a 75 basis points (bps) increase to the key rates. As a result, the interest rate on the main refinancing operations, the marginal lending facility and the deposit facility will be increased to 1.25%, 1.5% and 0.75% in that order.

Following the announcements, ECB President Christine Lagarde said, "It will take more than 2 meetings but less than 5 to get to the end of hikes." The policymaker also resisted confirming the next rate hike as 75 bps while highlighting the data dependency. It should be noted that ECB’s Lagarde mentioned that the downside scenario for growth includes negative growth in 2023.

Additionally, ECB’s economic forecasts unveiled a significant upward revision to the inflation projections to an average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024. The bloc’s central bank also cut growth forecasts while expecting the economy to grow by 3.1% in 2022, 0.9% in 2023 and 1.9% in 2024. The ECB’s economic update also stated, “After a rebound in the first half of 2022, recent data point to a substantial slowdown in euro area economic growth, with the economy expected to stagnate later in the year and in first quarter of 2023.”

On the other hand, Fed Chairman Jerome Powell said on Thursday that they need to act forthrightly and strongly on inflation, as reported by Reuters. "We think by our policy moves we will be able to put growth below trend and get labor market back into better balance," added Fed’s Powell.

Elsewhere, a sustained decline in the US Weekly Initial Jobless Claims to the lowest levels since May, with the latest figures beyond 222K, joins recent headlines suggesting improvement in the US-China trade ties, favoring the market sentiment.

Amid these plays, Wall Street closed with mild gains while the US 10-year Treasury yields rose to 3.32%.

Moving on, a light calendar may restrict EUR/USD moves while China’s Consumer Price Index (CPI) and Producer Price Index (PPI) may offer intermediate moves ahead of next week’s US CPI.

Technical analysis

Despite crossing a three-week-old resistance line, now immediate support around 0.9990, EUR/USD buyers need to print a successful run-up beyond the 21-DMA hurdle of 1.0025 to retake control.