EUR/USD movements in an otherwise quiet week for central banks

We have left behind the week of central banks that we have been eagerly waiting for. This week we have seen the decisions of the central banks of the U.S. (Fed), Europe (ECB), and the UK (BoE). There are no surprises in the decisions, but there are important statements regarding the upcoming period.

At the Fed's meeting this month, we saw an increase of 25 basis points, in line with expectations. With the unanimous decision, the Fed reduced the rate of increase in interest rates and increased the policy rate to the range of 4.5-4.75%. After the decision, the eyes were on Fed Chairman Powell, who held a press conference.

Powell gave the message "continue rate hikes". This Powell, who previously said "no one knows" to the questions asked about the recession, said this time "we expect suppressed growth, we do not see a recession". Powell also clarified this issue by saying that "according to the current outlook, it would not be appropriate for us to lower interest rates this year," eliminating the expectation of a rate cut this year.

Right after the Fed decision, we focused on the ECB's interest rate decision. The ECB also announced a decision in line with expectations. The ECB also anchored the expectations for the March meeting by using the statement "The Bank intends to increase the interest rate by 50 basis points at the monetary policy meeting to be held in March" in the text in which it increased interest rates by 50 basis points. Moreover, it was signaled that interest rates would continue to be increased significantly.

The Bank of England also took a step in line with expectations and increased the policy rate by 50 basis points.

The most important data that we followed closely during the Fed and ECB week was the Euro/Dollar parity. The pair, which reversed against the Euro at some point last year, has been rising for a while. ECB's tighter tightening steps compared to the Fed have had a big impact on this. Meanwhile, data from the U.S. and the Fed's more dovish messages cause the parity to rise. For example, the Fed's slowdown with a 25 basis point rate hike and Powell's messages were not hawkish, causing the following sharp movement in the pair.

If we do not encounter an additional shock throughout the year, we predict that the parity will remain slightly above the 1.10 level as a result of the policy steps of the Fed and ECB. Meanwhile, let's not forget that these tightenings will continue to negatively affect the value of emerging market currencies.