Euro Falls After Recent Rally
25 May 2022 - 6:36PM
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The euro slipped against its major counterparts in the European
session on Wednesday, as the European Central Bank warned that a
faster monetary policy normalization by major central banks risked
further sharp corrections in financial markets, while a policy
maker remarked that normalization process should not be equated
with getting rates to the neutral level.
Further corrections in financial markets could be triggered by
an escalation of the war, even weaker global growth or if monetary
policy needs to adjust faster than expected, the ECB said in its
Financial Stability Review.
"An abrupt increase in real interest rates could induce house
price corrections in the near term, with the current low level of
interest rates making substantial house price reversals more
likely," the central bank added.
The ECB should avoid the risk of a 'normalisation tantrum,'
board member Fabio Panetta said.
Normal did not mean neutral... normalisation process should not
be assessed against unobservable reference points, such as the
natural or neutral rate of interest, Panetta told.
Investors cautiously awaited minutes from the Federal Reserve's
latest policy meeting to assess the pace of tightening of monetary
policy.
The euro dropped to 2-day lows of 135.37 against the yen and
1.0266 against the franc, off its early highs of 136.24 and 1.0315,
respectively. The euro is seen finding support around 130.00
against the yen and 1.01 against the franc.
Moving away from its early highs of 1.0739 against the greenback
and 1.6677 against the kiwi, the euro declined to 2-day lows of
1.0656 and 1.6420, respectively. The euro may find support near
1.04 against the greenback and 1.62 against the kiwi.
The euro edged down to 0.8513 against the pound, following a
high of 0.8566 set at 5 pm ET. Against the loonie, it reached as
low as 1.3690. If the euro falls further, it may locate support
near 0.82 against the pound and 1.34 against the loonie.
In contrast, the euro recovered to 1.5133 against the aussie,
after declining to a 2-day low of 1.5023 at 3 am ET. The euro is
likely to face resistance around the 1.55 level.
Looking ahead, U.S. durable goods orders for April will be
featured in the New York session.
The Fed minutes from the May 3-4 meeting is set for release at
2:00 pm ET.
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