Euro to US Dollar Exchange Rate Plunging ahead of Federal Reserve Policy Decision
Investors are selling the Euro (EUR) due to Eurozone economic jitters, causing the Euro to US Dollar (EUR/USD) exchange rate to plunge today. The pair’s movement may be limited though, depending on market reaction to this evening’s Federal Reserve policy decision.
Since opening this week at the level of 1.2171, EUR/USD has been trending with a downside bias. While EUR/USD attempted to recover yesterday evening, the pair is once again tumbling today.
At the time of writing on Wednesday afternoon, EUR/USD is trending near the level of 1.2065. This puts EUR/USD below last week’s opening levels, meaning the pair has shed all of last week’s gains.
Euro (EUR) Exchange Rates Slide on Speculation Markets are Underestimating Rate Cut Chances
The Euro has seen mixed movement lately, but markets generally expected that the European Central Bank (ECB) would not see a shift in tone regarding monetary policy. This was keeping the Euro from moving too much.
However, the shared currency was knocked today, by fresh speculation that the ECB could cut Eurozone interest rates soon.
The bank was reportedly concerned that markets were pricing out the chances of more interest rate cuts from the ECB. As a result, Governing Council Member Klaas Knot said:
‘I always quip that we’ve explored the effective lower bound, but we haven’t found it yet,
There is still room to cut rates.’
Fresh rate cut speculation, as well as Eurozone coronavirus vaccine fears, weighed on the Euro today.
US Dollar (USD) Exchange Rates Climbing Ahead of Federal Reserve Decision
Market sentiment has been highly mixed this week so far. The safe haven US Dollar is seeing a brief rise in demand ahead of this evening’s Federal Reserve policy decision.
The Federal Reserve is expected to remain fairly dovish on monetary policy due to how the US economy has been hurt by the coronavirus pandemic.
According to Jordan Rochester, FX Strategist at Nomura, today’s EUR/USD dip may be limited:
‘Probably one of those headlines where it’s a buy on the dip moment in Euro/Dollar here,
Despite the heavy positioning, we continue to favour buying Euro/Dollar on dips as we see the pair steadying in a $1.20-$1.25 range,’
Euro to US Dollar (EUR/USD) Exchange Rate Focused on Central Bank Developments
The big focus for the Euro to US Dollar exchange rate for now will be this evening’s Federal Reserve policy decision.
The bank is not expected to make any big shifts in tone on monetary policy. However, if the bank remains dovish despite optimism over the Joe Biden administration and coronavirus vaccines, the US Dollar could be in for fresh losses.
Indeed, EUR/USD could recover some of today’s losses in the event of a dovish Fed. The pair’s current weakness is likely to be limited.
However, the Euro could weaken in the coming sessions if European Central Bank (ECB) officials continue to show dovish rhetoric as well.
For example, some ECB officials will hold speeches through the end of the week. More hints of a potential rate cut could lead to more Euro losses.
Tomorrow’s Eurozone economic sentiment data and US growth rate data will also be closely watched by the Euro to US Dollar (EUR/USD) exchange rate investors.
