The major currency pair is gearing up for a week filled with significant events. The current EURUSD quote is 1.1120.
A period of heightened emotions awaits the currency market. The meeting of the US Federal Reserve System is set to conclude on Wednesday, followed by the European Central Bank's meeting on Thursday. Both regulators are expected to announce a 25-basis-point increase in the interest rate. The difference lies in their accompanying comments and future policy outlook.
The Fed will raise the rate to 5.5% per annum and is likely to stop further increases at this point, at least based on average forecasts. This poses the main market intrigue: what and how the Fed will communicate about the future of monetary policy. A rate of 5.5% is restrictive for the economy and the financial system. Anything higher could have negative consequences for the nation's economic system and lead to rapid recession.
The question is how the Fed views inflation and the sustainability of the economy. The Fed's assessment of inflation and the economy is critical in shaping its future policy decisions. Signals indicating a potential pause in rate hikes will likely result in a weaker dollar.
The ECB is very likely to maintain its tough approach, despite recent positive inflation signals. Prices seem to have been brought under control, but it remains uncertain whether this is a coincidental occurrence or a developing trend. Any indications of further rate hikes will support the EUR's value.
In summary, the focus is on global regulators, as they are now taking on the role of the primary market influencers.