Euro US Dollar (EUR/USD) Exchange Rate Rises as Markets Brace for Fed
The Euro US Dollar (EUR/USD) exchange rate made modest gains this morning although it remains close to one-week lows as markets brace for the Federal Reserve interest rate decision.
At the time of writing, EUR/USD is trading at around $0.9898, up around 0.2% from today’s opening levels.
US Dollar (USD) Slips amid Risk-On Mood
The US Dollar (USD) is on the defensive this morning as hesitancy ahead of the Fed decision and a risk-on market mood mute the safe-haven currency.
Markets rallied overnight amid upbeat comments from China, the world’s second largest economy. Chinese government and banking officials indicated that the country’s economy is on track, with its housing market starting to stabilise after turmoil in recent months.
This upbeat mood has extended into European trade, thereby weighing on USD.
In addition, traders are somewhat cautious ahead of the Fed decision. There is speculation that the US central bank could signal a slower pace of policy tightening from December onwards. While inflation remains high, some policymakers are reportedly concerned about the impact of higher interest rates on the country’s economy.
With some uncertainty over the Fed’s stance, investors are understandably wary.
Euro (EUR) Undermined by Dire PMI
Meanwhile, the Euro’s (EUR) gains against the US Dollar have been capped by some poor Eurozone data.
The bloc’s manufacturing PMI printed slightly lower than preliminary estimates. The final PMI printed at 46.4 in October, its lowest level since May 2020, as the ongoing contraction in factory activity deepened for the fourth consecutive month.
This dire data raises fears about a possible recession in the Eurozone, which in turn is limiting EUR’s gains against USD today.
EUR/USD Exchange Rate Forecast: Fed Decision in the Spotlight
Looking ahead, the Fed decision is in focus. But ahead of the central bank’s meeting, the latest US ADP employment change figures could trigger some movement. If the jobs report indicates ongoing strength in the US labour market, this could give Fed rate hike bets a boost. As a result, the US Dollar could rise.
This evening we may see volatility in EUR/USD. If the Federal Reserve does signal a slower pace of policy tightening in the months to come, the ‘Greenback’ could face a sharp downward correction. Conversely, if policymakers reiterate the need for aggressive rate rises then the Dollar may jump.
