EUR/USD drops below 0.9990 as traders brace for the Fed’s decision

• EUR/USD remains defensive ahead of the Federal Reserve’s September meeting.
• The Fed is expected to hike by 75 bps, making it three large rate increases in straight meetings.
• Germany’s PPI continued elevating sharply, increasing the odds of another rate hike by the ECB.

The EUR/USD slides below parity on a choppy trading session courtesy of a tranche of central bank’s monetary policy decisions, particularly the US Federal Reserve, which is expected to raise rates by 75 bps on Wednesday. Therefore, US equities tumbled, while US bond yields rose sharply.

The EUR/USD remains under pressure after hitting a weekly high at around 1.0050 earlier, bolstered by higher than expected German PPI. However, as the North American session began, the exchange rate tumbled below parity and its opening price. At the time of writing, the EUR/USD is trading at 0.9983.

EUR/USD drops on strong US dollar

Earlier, US housing data revealed by the Commerce Department reported that housing starts had risen surprisingly, though building permits decelerated to their lowest pace in two years, showing how higher mortgages are weighing on demand. Borrowing costs climbing since the Fed began hiking rates have taken mortgage rates above the 6% threshold.

In the meantime, the US Dollar Index, a gauge of the buck’s value vs. a basket of currencies, is rising 0.42%, up at 110.052, while the US 10-year bond yield edges up eight bps, at 3.573%, a headwind for the EUR/USD.

Elsewhere, data revealed in the Euro area, mainly Germany, showed that prices paid by producers climbed in August by 7.9% MoM, vs. 2.4% estimates, and two and a half percent higher than July’s reading. On an annual basis, the reading edged up by 45.8% above 37% estimates. Sources quoted by Reuters said that “surging costs are seen in not only oil and gas but also electricity.”

Regarding energy themes, German regulators reported that gas inventory levels are at 89.67% as of Monday, as the winter season looms. Even though the rhythm of stockpiling has been impressive, the possibility of no more Rusian gas flowing through the coldest season may spur rationing.

What to watch

The EU’s docket will feature the ECB Vice-President Luis de Guindos on Wednesday, alongside the German Finance minister Lindner. On the US front, US Existing Home Sales and the much-awaited FOMC’s monetary policy decision.

EUR/USD Key Technical Levels