EUR/USD bounces above parity on hawkish ECB

Despite the US dollar’s strength, on Tuesday, the EUR/USD pair advances underpinned by ECB’s Governing Council members expressing the need for a 75 bps rate hike in September. US Consumer Confidence surprisingly surged, while job vacancies topped expectations.

The ECB speakers were led by ECB Knot, who said he’s leaning towards a 75 bps rate hike, adding that normalization of rates is an “essential” first phase while adding that an economic slowdown later this year is unavoidable. Echoing some of his comments was ECB Vasle, adding that inflation is more persistent and backs a higher increase than 50 bps, while ECB Muller said the bank should discuss 75 bps.

August’s German inflation figures were aligned with estimations, except for headline inflation, closing to the 8% threshold. The EUR/USD pair regains parity for the second time in the week, up 0.33%, despite the negative market sentiment, though a softer US dollar and ECB’s hawkish rhetoric bolstered the EUR/USD.

At the time of writing, the EUR/USD is trading at 1.0021 above its opening price after hitting a daily high at 1.0054. EUR/USD is underpinned by ECB hawkish commentary of seven ECB speakers during the day. Meanwhile, August’s US CB Consumer Confidence rose to 103.2, topping expectations of 98. At the same time, the US Department of Labor reported that job openings on the JOLTs Openings report rose by 11.2 million, exceeding all the forecasts, while quits diminished.

Fed speakers led by New York Fed President Williams, Richmond’s Barkin, and Atlanta’s Bostic gave remarks during the day. They all reiterated the Fed’s commitment to bringing inflation down while adding that the Fed needs to get to the restrictive territory.

Williams stated that he wants rates above 3.5%, while Barkin said that the Fed would do “what it takes” to get to the 2% target. Meanwhile, Bostic said that if indeed inflation is moving down, then the Fed might refrain from the 75 bps rate hikes.

Earlier in the day, ECB Wunsch said the bank has to act quickly on rate hikes to a level that may be restrictive, even if the EU’s economy enters a recession. ECB’s Muller said price stability is our main concern and has to come first, adding that the ECB needs to continue hiking.

During the European session, the EU’s economic and industrial sentiment missed expectations, but German inflation figures showed prices increasing as expected, except for the year-over-year reading, with German inflation at 7.9%, higher than 7.8% estimates.