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Forex News: Euro Falls After Recent Rally

Euro Falls After Recent Rally

05/25/2022 - 08:36:00 (RTTNews)

(RTTNews) - The euro slipped against its major counterparts in the European session on Wednesday, as the European Central Bank warned that a faster monetary policy normalization by major central banks risked further sharp corrections in financial markets, while a policy maker remarked that normalization process should not be equated with getting rates to the neutral level.

Further corrections in financial markets could be triggered by an escalation of the war, even weaker global growth or if monetary policy needs to adjust faster than expected, the ECB said in its Financial Stability Review.

"An abrupt increase in real interest rates could induce house price corrections in the near term, with the current low level of interest rates making substantial house price reversals more likely," the central bank added.

The ECB should avoid the risk of a 'normalisation tantrum,' board member Fabio Panetta said.

Normal did not mean neutral... normalisation process should not be assessed against unobservable reference points, such as the natural or neutral rate of interest, Panetta told.

Investors cautiously awaited minutes from the Federal Reserve's latest policy meeting to assess the pace of tightening of monetary policy.

The euro dropped to 2-day lows of 135.37 against the yen and 1.0266 against the franc, off its early highs of 136.24 and 1.0315, respectively. The euro is seen finding support around 130.00 against the yen and 1.01 against the franc.

Moving away from its early highs of 1.0739 against the greenback and 1.6677 against the kiwi, the euro declined to 2-day lows of 1.0656 and 1.6420, respectively. The euro may find support near 1.04 against the greenback and 1.62 against the kiwi.

The euro edged down to 0.8513 against the pound, following a high of 0.8566 set at 5 pm ET. Against the loonie, it reached as low as 1.3690. If the euro falls further, it may locate support near 0.82 against the pound and 1.34 against the loonie.

In contrast, the euro recovered to 1.5133 against the aussie, after declining to a 2-day low of 1.5023 at 3 am ET. The euro is likely to face resistance around the 1.55 level.

Looking ahead, U.S. durable goods orders for April will be featured in the New York session.

The Fed minutes from the May 3-4 meeting is set for release at 2:00 pm ET.

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