The Fed hiked the interest rate by 25 basis points yesterday and hinted that there will be another hike, after which it will likely be done with tightening. Despite worries about inflation, Powell said at the press conference that the committee believes it is necessary to slow down the pace of monetary tightening. Market indicators of the Fed's terminal rate changed slightly (also remaining nearly 5%), but judging by the performance of risk assets, the cryptocurrency market and the dollar, investors increased their expectations of the Fed's policy easing cycle in the second half of the year. For example, the yield to maturity of 10-year Treasury bonds fell about 15 basis points to 3.35%, the S&P 500 soared from 4050 to 4150 points, and the dollar fell below 101 points after which it rebounded rapidly and almost erased the fall that was triggered by the FOMC update.

Today, the ECB also held a meeting at which the regulator announced a rate increase by 50 basis points. Thus, the ECB raised the deposit rate to 2.5% and the refinancing rate to 3%. But there was something else too: the ECB announced in advance another rate hike next month, also by 50 basis points, opening the door for either a pause or a slower rate hike after March. The ECB also reaffirmed the December decision that the QE rate will decrease by an average of 15 billion euros per month from the beginning of March to the end of June 2023.

It took the ECB a while, but it seems to have learned how to raise interest rates. And as long as core inflation remains consistently high and core inflation forecasts remain above 2%, the ECB will continue to tighten the monetary policy. The growing likelihood that a recession will be avoided in the first half of the year also gives companies more room to increase their pricing power, thus strengthening the basis for elevated inflationary expectations.

The famous fiscal stimulus that eased recession fears is an additional concern for the ECB, as it could turn a supply-side inflation problem into demand-side inflation. These are two factors that could increase inflationary pressures in the euro area, albeit at a lower level than previously expected. As a result, the ECB is likely not only to continue to raise rates until late spring, but to keep interest rates high for longer than the period that the markets are pricing in.

EURUSD rose above 1.10 today, but ran into strong resistance, which led to a collapse below 1.09, nevertheless, it is risky to sell the euro now - the ECB appears to have an advantage in tightening, the risks of a recession in the global economy (which could spur a safe haven USD demand) have slightly decreased. Thus, new highs for EURUSD in the next month are not ruled out, however, a correction from the round level was necessary. The support area for the pair resides in the range of 1.08-1.0875 (the lower limit of the bullish channel):