Australian Exchange FX: What are the possible implications of the Federal Reserve and European Bank resolutions for the US dollar and the euro?

Markets are expecting the Federal Reserve to raise interest rates by another 25 basis points this week. If the Fed hints that rate hikes are over, then the dollar could come under pressure, but any hint that more needs to be done could prove a surprise that would underpin the dollar's recovery. Bank of America analysts expect the European Central Bank to raise interest rates by a final 25 basis points this week, underscoring their expectation that support for the euro will be limited going forward

Market analyst Gary Howes wrote that this week will see interest rate decisions from the Federal Reserve and the European Central Bank, as well as July PMI data from the UK and the euro zone. In addition, inflation reports from Germany, France and Spain will also be released before the weekend. The outcome of all these events will strengthen market expectations for the outlook for interest rates in major economies, which is in the current climateforeign exchange marketKey drivers of the trend.On July 27th (Thursday) at 02:00 Beijing time, the Federal Reserve will announce its interest rate decision.The market expects the Fed to raise interest rates by another 25 basis points this time. However, guidance on whether another rate hike is possible will determine the market's reaction.

If the Federal Reserve signals that rate hikes are over, the dollar could come under pressure, but any hint that more needs to be done could prove a surprise, which would underpin the dollar's recovery.

Michalis Rousakis, analyst at Bank of America Merrill Lynch, said: "The stabilising message from the FOMC should limit downside for front-end rates and the dollar." He explained that Fed chairperson Jerome Powell was unlikely to rule out further monetary tightening at his press conference.

On Thursday, July 27 at 20:15 Beijing time, the European Central Bank will announce its interest rate decision. The market expects the ECB to raise interest rates by another 25 basis points this week, and the decision is unlikely to cause volatility in the foreign exchange market. But what could cause some uproar is the guidance on the September decision: If markets price in a September rate hike, it means any resistance to that expectation could lead to a significant drop in those expectations. Such a development could weigh heavily on the euro.

Last week, several prominent members of the European Central Bank's governing council signalled that plans for a September rate hike had not yet been finalised, adding to the uncertainty ahead of Thursday's meeting.

Bank of America analysts expect the European Central Bank to raise interest rates by 25 basis points for the last time this week, underscoring their expectation that support for the euro will be constrained going forward.

With inflation data coming out in Germany, France and Spain, the pound is likely to move further against the euro this weekend, which should set the stage for eurozone data next Monday.

These results will almost certainly determine the fate of the eurozone's decision in September and the direction of the euro in the coming weeks.AohuiForeign exchange reminds investors to pay attention to policy trends when trading.

EUR/USD daily chart

At 10:00 on July 24, Beijing time, the euro was trading at 1.1121/24 against the dollar.