Euro US Dollar (EUR/USD) Slumps ahead of Fed Monetary Meeting
The Euro US Dollar (EUR/USD) exchange rate is slumping this morning as markets anticipate the Federal Reserve’s latest interest rate decision due on Wednesday this week.
At the time of writing the EUR/USD exchange rate is trading at $1.0848, down approximately 0.2% from this morning’s opening rate.
Euro (EUR) Mixed despite Upbeat ZEW index
The Euro (EUR) is wavering against its peers this morning despite the ZEW economic sentiment index surpassing forecasts in both Germany and the wider Eurozone.
The German index reached 31.7 in March, smashing expectations of 20.5 and hitting a twenty-five-month high.
The Eurozone’s ZEW economic sentiment indicator also rebounded to 33.5, hitting a two-year high this month, though is generally viewed as less impactful than Germany’s release.
Despite an improving sentiment, concurrent worries that Eurozone’s largest economy continues to teeter on the brink of domestic recession bolsters expectations of looming European Central Bank (ECB) interest rate cuts.
Achim Wambach, ZEW’s President Professor noted:
‘Economic expectations for Germany are significantly improving. At the same time, more than 80 per cent of those surveyed anticipate that the ECB will cut interest rates in the next six months.’
Elsewhere, the US Dollar’s (USD) recent winning streak stifles EUR movement. The currency pairing’s negative correlation could see EUR struggle to gain significant ground today amid stubborn ECB rate cut bets.
US Dollar (USD) Strengthens ahead of Fed Update
The US Dollar is extending its recent gains this morning as investors anticipate the Fed’s latest interest rate decision.
The ‘Greenback’ managed to hold onto yesterday’s gains, which were initially sparked by US Treasury yields reaching their highest level in nearly a month. Falling gold prices also served to bolster USD early this morning, due to the safe-haven currency’s inverse trading relationship with the precious metal.
However, a lack of notable economic releases throughout the remainder of today’s session could serve to limit the US Dollar’s upside potential, should investors express reluctance to place aggressive bets ahead of tomorrow’s market moving updates.
Matt Eagan, Head of the Full Direction Team at Loomis, Sayles and Co, commented:
‘What will be really interesting to see is if the Fed is still comfortable in the dot plots to still be showing the possibility of three rate cuts for this year. Or will they start to say we’ve got to push back against this a little bit longer.’
Following last week’s warmer-than-expected CPI, markets speculate that the Fed could continue to push back against imminent monetary loosening, which may bolster the ‘Greenback’ in the coming days.
Should policymakers indeed sway hawkish tomorrow, USD will likely rally, continuing to climb against its peers.
Euro US Dollar Exchange Rate Forecast: Eyes on Fed Rate Decision
Looking ahead, the Fed’s latest monetary update will be the core catalyst of US Dollar movement. Should policymakers express a hawkish tilt in their forward guidance, USD could garner investor interest.
However, economists forecast an increase to 215,000 newly jobless American citizens claiming unemployment benefits, for the week ending 16 March. This could hamper USD’s upside amid signs of a loosening US labour market.
For EUR, ECB President Christine Lagarde is due to speak tomorrow. Dovish commentary from Lagarde could see the common currency sink, solidifying recent rate cut speculations.
