Euro US Dollar Exchange Rate Wavers as Investors Await Key Inflation Data
The Euro US Dollar (EUR/USD) exchange rate is wavering this morning amid a dovish Federal Reserve and an improving market mood. All eyes will be on the US inflation data on Thursday.
At time of writing the EUR/USD exchange rate is trading around $1.0740, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Pressured by Cautious Investors and Upbeat Market Mood
The US Dollar is struggling for increased demand this morning as both investors and the Fed await inflation data on Thursday.
With the CME Group FedWatch Tool pricing in a nearly 80% chance of a modest 25bps rate hike at the next Fed meeting in February. With inflation seemingly peaking, the Fed will be closely watching the US economy in deciding on monetary policy going forward. Both Atlanta Fed President Raphael Bostic and San Francisco Fed President Mary Daly said they will wait on inflation data before deciding on further rate hikes. Bostic added:
‘Eventually I want us to get to 25 (bps rate hikes). The specific timing of that is going to be a function of the data that comes in.’
A slowing pace from the Fed could sap demand as inflation begins its long descent from its lofty heights. However, if the labour market remains resilient, and core prices continue their climb, the central bank may opt for larger rate hikes.
Euro (EUR) Quiet ahead of US Inflation Data
Meanwhile, the Euro is fairly subdued this morning amid a lack of major economic data. The negative correlation the Euro shares with the US Dollar could see increased movement with the publishing of US inflation data on Thursday. Investors in the meantime, might be holding back until then.
Until then, headlines out of Ukraine could continue to influence movement in the Euro. With reports of both the US and UK potentially sending Ukraine tanks and armoured vehicles, investors could be cautious over the escalating conflict. After Ukraine President Volodymyr Zelenskiy called for tanks, Western countries have announced a step-up in providing heavy metal for the besieged country.
Euro US Dollar Forecast: Fed Speech to Reassure Nervy Investors?
Looking ahead, the Euro US Dollar exchange rate could see further movement with a speech from Fed Chair Jerome Powell. Any further hints that the central bank remains committed in bringing inflation down could lift the ‘Greenback’.
Meanwhile, the only other piece of economic data of major importance will be the US rate of inflation on Thursday. An expected softening of inflation to 6.5% could weaken the US Dollar on reduced rate hike bets. However, with the negative correlation the Euro shares with the US Dollar, the single currency could climb.
