The EUR/USD duo crept up since last Friday to reach a high level of 1.0830 in early trading this week. It was following a speech by the Fed and ECB bosses who attributed differences in the outlook for interest rate policy.
The Fed Chairman, Jerome Powell, signaled caution amid tightening credit conditions. On the other hand, ECB President, Christine Lagarde, expressed a hawkish stance again.
All employees of the European Central Bank (ECB) last week reiterated their hawkish stance. That was in contrary to the results of the ECB's meeting earlier this month which was rather dovish.
The ECB President even warned that Europe was "prepared" for a sustained high interest rate to achieve its inflation target. In an interview, she said significant steps had been taken to control inflation and align it with the ECB's target.
Eurozone Outlook is Still high
However, the Eurozone inflation outlook is still too high and requires tighter monetary policy. They are not done yet, they're not going to stop the rate hike cycle based on the information that he have today.
Unfortunately, the former IMF director refused to give clearer guidance on her policy plans going forward. She said there were many unexpected factors that could disrupt the future economic outlook.
That is why; she could not mention a specific figure. When asked about negotiating the U.S. debt ceiling, Lagarde said the world was threatened with catastrophe if the United States really defaulted.
However, she also believes that the American leaders will try to avoid the worst-case scenario. Lagarde said that she believes in the common sense and state consciousness of the leaders to reach an agreement.
DXY may Fall Further
That situation, otherwise, would lead them to a very, very negative developments. Sean Callow, a Westpac strategist, also believes an agreement on the U.S. debt ceiling will be reached.
At the same time, he assessed that the Fed's policy outlook would weigh on the US dollar exchange rate against its main rivals. He predicts the US dollar index (DXY) could fall.
The amount is towards 101.00 in the coming days or weeks. That is especially due to the contrasting stance between the Fed boss and the ECB.
The Powell's preference to pause rate hikes in June should outperform hawkish opinions from regional Fed presidents. That is why; DXY becomes 'sell on rallies, as said by callow.
Hawkish Statement Brings Gold Back from Rising
Elsewhere, Gold prices fell slightly in the trading session on Monday night. Spot gold lost 0.2% to $1973.30 an ounce, while gold futures slipped by 0.3% to $1976.20.
The XAU/USD chart also shows a 0.2% drop in this commodity price to $1973.44. Hawkish statements from Fed officials were the main factor holding this precious metal back from rising.
Minneapolis Fed President, Neel Kashkari, said that the interest rates are likely to rise to 6%. That was as the United States inflation still needs to be curbed to 2%.
Similarly, St. Louis Federal Reserve President, James Bullard, also still implied about raising interest rates. He thinks that they still need to raise interest rates to put enough pressure to bring inflation down.
Gold Price will be Difficult to Rise
Besides that, the rising interest rate is also important to get inflation back to target in a timely manne. This was stated by Bullard in a discussion forum in Florida.
The high interest rates will reduce buying interest in gold which is a non-yielding asset. FXTM analyst, Mr. Lukman Otunuga said that gold prices are likely to be difficult to rise in the medium term due to interest rate expectations.
Technically, he predicts that if the price continues to fall below the $1970 support, then this commodity will test $1945 and $1900. Debt ceiling is another factor that cannot be denied too.