Euro US Dollar Exchange Rate Trades Narrowly amid a Cautious Market Mood
The Euro US Dollar (EUR/USD) exchange rate is zigzagging this morning. Investors now turn their attention to central bank interest rate decisions. A flurry of disappointing data weighed on both the Euro and the US Dollar.
At time of writing the EUR/USD exchange rate is trading around $1.0521, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Quiet Ahead of Interest Rate Decision
Meanwhile, the US Dollar remains subdued this morning as investors await the interest rate decision from the Federal Reserve.
The US saw a fifth consecutive fall in inflation yesterday, in both headline and core readings. With the rate decision upcoming, a 50bps rate hike is all but priced in. A dovish turn from the Fed further points to a gradual easing of tightening policy as inflationary pressures ease. However, even a hawkish turn from Fed policymakers is unlikely to boost the US Dollar, according to economists at Commerzbank. They added:
‘It would make sense that the Fed chair not only announces less rapid rate hikes but increasingly talks about the Fed’s rate hike cycle coming to an end soon. And that we will see more USD weakness if inflation continues to fall in the US over the coming months.’
However, inflation remains far above the central bank’s target rate. Investors are still convinced the Fed still has some way to go. With no further economic data to influence policymakers, USD investors will be sitting tight.
Euro (EUR) Undermined by Sliding Industrial Production
The Euro is failing to capitalise on the relative weakness in the US Dollar as industrial production contracted more than expected.
With expectations of a 1.5% fall, Euro area industrial production slid by 2% MoM in October. Capping any further losses, when compared to October last year, industrial production grew by 3.4%. However, the drastic slump in the sector paints a bleak picture of Eurozone growth going forward.
Disappointing industrial sector appears to offset the modest gains the Euro enjoyed after its negative correlation to the US Dollar. With tempered rate hike expectations from the Fed, the single currency is struggling to shrug off the poor economic data ahead of crucial interest rate decisions.
Euro US Dollar Forecast: Fed Rate Decision to Weigh on Greenback?
Looking ahead, the Euro US Dollar exchange rate could see drastic movement with the release of the Fed’s interest rate decision. A deviation from the expected 50bps hike could send the ‘Greenback’ reeling on a smaller raise or soaring on a bolder one. The negative correlation the Euro shares with the US Dollar could see the single currency move in opposites to the ‘Greenback’.
Meanwhile, the European Central Bank (ECB) are also expected to raise their interest rates by 50bps. A remote possibility of a bolder 75bps rate hike could send the Euro surging on a hawkish central bank.
