Euro US Dollar (EUR/USD) Exchange Rate Fluctuates as US Braced for Mild Downturn
The Euro US Dollar (EUR/USD) exchange rate is trading erratically as US recession risks are countered by a persistently hawkish stance from the Federal Reserve.
At time of writing, the EUR/USD exchange rate is around $1.0978, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Undermined by Recession Risks
The US Dollar is trading with mixed success this morning as recession risks grow. Despite this, the Fed remains bullish, keeping the ‘Greenback’ modestly supported.
With retail sales on Friday revealing a substantial decline by 1%, against an expected 0.2% contraction, the US Dollar plunged against its rivals heading into the weekend. The latest figures highlighted mounting cost pressures and soaring interest rates are weighing on consumer spending.
Recession fears have returned to the fray after minutes from the Federal Open Market Committee (FOMC) policy meeting last week revealed economists believe the US will suffer a mild downturn this year. The International Monetary Fund (IMF) also expect subdued growth in the US, denting investor confidence.
However, the ‘Greenback’ is managing to recover some of its losses as Fed policymakers maintained their hawkish stance. Analysts at Australia and New Zealand (ANZ) believe that inflation remains sticky, which could provide enough for the Fed to continue increasing interest rates. They said:
‘The minutes to the 2-3 March FOMC meeting showed that all Fed officials agreed to raise the target policy range by 25bp as they weighed up the risks of persistently high inflation and a tightening in credit conditions following a string of bank failures.’
Euro (EUR) Quiet ahead of Lagarde Speech
Meanwhile, the Euro (EUR) is struggling to find much demand amid a lack of economic data.
Limiting any losses for the single currency are elevated interest rate hikes from the European Central Bank (ECB). When other central banks are contemplating pausing their tightening cycles, the ECB remains resolute in continuing their aggressive monetary policy.
EUR investors will be looking towards the speech from ECB President Christine Lagarde later this afternoon. Speaking at the Council on Foreign Relations in New York, if Lagarde maintains a hawkish rhetoric, the Euro could be boosted.
Euro US Dollar Exchange Rate Forecast: Sliding US Manufacturing PMI to Dent the Dollar?
Looking ahead, the Euro US Dollar exchange rate could see further movement with the release of the New York Empire State manufacturing index. After tumbling to -24.6 last month, a modest improvement to -18 is hardly likely to inspire confidence. If US data continues to disappoint, the Fed will be left with a tough choice, and could pause interest rates sooner than expected. The ‘Greenback’ could stumble on pared rate hike bets.
Meanwhile, Euro investors will be waiting with bated breath on comments from Lagarde. If she strikes a more cautious tone, the Euro could slide.
