Euro US Dollar Exchange Rate Wavers as Hawkish Fed Buoys USD Investors
The Euro US Dollar (EUR/USD) exchange rate is trading erratically this morning as investors await key economic data releases. An expected hawkish FOMC failed to rally the US Dollar as Euro investors brace for latest inflation rate.
At time of writing the EUR/USD exchange rate is trading around $1.0611, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Supported by Hawkish Tone of FOMC Minutes
The US Dollar opens the day relatively quiet as investors await a flurry of economic data later today. The somewhat hawkish tone struck by policymakers in the Federal Open Market Committee (FOMC) did provide some relief against a risk-positive market mood.
The FOMC minutes released last night revealed that the majority of policymakers in the December meeting agreed that it would take ‘substantially more evidence’ to show that inflation had peaked. Further interest rate hikes are to be expected, buoying investors’ spirits. The minutes also rule out any sort of policy pivot with a slowing pace of rate raises. The minutes also revealed:
‘No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023’.
Elsewhere, upbeat employment data further highlighted a resilient labour market, further bolstering the Federal Reserve’s hawkish stance. The ISM manufacturing PMI showed that employment in the sector unexpectedly grew in December. Meanwhile, almost 10.5million job openings were reported, compared to an expectation of 10million.
Euro (EUR) Quiet Ahead of Inflation Rate
Meanwhile, the Euro remains fairly subdued this morning as investors brace for flash estimates of the latest inflation data for the Eurozone tomorrow. However, with fears of a looming recession to hit the bloc, any gains could be hampered somewhat.
With both France and Germany experiencing softening inflation, EUR investors are expecting the Euro area inflation to soften too. With producer price inflation dropping for the second consecutive months, many are hoping that inflationary pressures have finally peaked.
However, with inflation expected to remain elevated far above the European Central Bank’s (ECB) target of 2%, the Euro area still has a long way to go before it’s out of the woods.
Euro US Dollar Forecast: Flurry of Data to Mute the Greenback?
Looking ahead, the Euro US Dollar exchange rate could see further movement with the release of key economic data later. Initial jobless claims and final services PMI will be released. However, predictions of a rise in unemployment claims and a fall in service sector activity could weigh on the US Dollar.
Meanwhile, the Euro could be left to trade on market sentiment as data remains thin for the rest of the day. The negative correlation the Euro shares with the US Dollar could impact things if the ‘Greenback’ dips on poor data.
