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Euro Drops Amid Fed Tightening Concerns


The euro fell against its major counterparts in the European session on Thursday, as investors digested the U.S. Federal Reserve’s minutes that laid out plans to reduce the size of the balance sheet and suggested aggressive interest rate hikes to combat inflation.

The Fed minutes from the March meeting showed that most policymakers supported one or more 50 basis point rate hikes at future meetings, if inflation pressures remained elevated or intensified.

Fed officials agreed that balance sheet runoff should start from May. The plan involves reducing bond holdings by $95 billion per month and the amounts could be phased in over a period of three months or modestly longer if market conditions warrant.

The monetary policy divergence between the Fed and the European Central Bank also undermined the euro.

Data from Eurostat showed that Eurozone retail sales grew less than expected in February as the decline in food sales deepened.

Retail sales rose 0.3 percent month-on-month in February, slightly faster than the 0.2 percent increase in January. However, sales were slower than the expected growth of 0.6 percent.

Data from Destatis showed that Germany industrial production grew unexpectedly in February.

Industrial output grew 0.2 percent month-on-month in February, confounding expectations for a fall of 0.2 percent. Nonetheless, this was slower than the revised 1.4 percent increase posted in January.

The euro dropped to more than a 4-week low of 1.0865 against the greenback and a fresh 2-week low of 0.8314 against the pound, off its prior highs of 1.0934 and 0.8351, respectively. The euro is poised to challenge support around 1.06 against the greenback and 0.82 against the pound.

The euro was down against the yen, at a 2-day low of 134.42. The euro is seen finding support around the 132.00 level.

Reversing from its early 3-day highs of 1.4602 against the aussie, 1.3727 against the loonie and 1.5839 against the kiwi, the euro edged down to 1.4529, 1.3650 and 1.5765, respectively. The next possible support for the euro is seen around 1.44 against the aussie, 1.35 against the loonie and 1.54 against the kiwi.

The euro eased off from a prior high of 1.0191 against the franc and slipped to 1.0146. The euro may possibly challenge support near the 1.00 level.

Looking ahead, U.S. weekly jobless claims for the week ended April 2 and consumer credit for February will be featured in the New York session.

Germany Industrial Production Expands In February

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