Euro US Dollar Exchange Rate Fluctuates amid Monetary Policy Uncertainty
The Euro US Dollar (EUR/USD) exchange rate is trading narrowly amid uncertainty surrounding the Federal Reserve’s monetary policy.
At time of writing the EUR/USD exchange rate is trading around $1.006, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Undermined by Fed Uncertainty
The US Dollar (USD) is trading quietly against many of its rivals amid growing uncertainty surrounding the Federal Reserve’s monetary policy going forward.
Today marks the second day of Fed Chair Jerome Powell’s testimony before Congress, after yesterday he reiterated his previous comments that a resumption of rate hikes could be a reality very soon. Powell said that last week’s decision of a pause could be temporary, and rates will probably climb once again the latter part of the year.
However, despite the hawkish tone, USD investors do not seem confident. Economists at Rabobank believe that the Fed’s uncertainty could be weighing on the ‘Greenback’:
‘While we expect the Fed to hike in July, a more moderate pace would imply skipping September and that would leave us with November as the meeting for the second hike. However, even the Fed’s own staff expects the economy to be in a mild recession by then. Therefore, we continue to leave a second hike out of our forecasts.’
Euro (EUR) Supported by Hawkish ECB
Meanwhile, the Euro (EUR) remains fairly quiet amid a lack of economic data. However, persistent hawkish rhetoric from the European Central Bank (ECB) could be preventing the Euro slide.
With expectations that the central bank could continue raising interest rates through July could be keeping EUR investors cheered. ECB President Christine Lagarde reiterated her stance that the door for at least another hike at the July meeting will remain open. Economists at Scotiabank believe that a hawkish ECB could keep the Euro supported. They said:
‘Hawkish ECB comments are boosting market expectations that ECB policy will peak at 4% and supporting the EUR.’
Euro US Dollar Forecast: Cooling US Labour Market to Dent the Dollar?
Looking ahead, the Euro US Dollar exchange rate could fluctuate further with the latest initial jobless claims. An expected climb of unemployment claims could further suggest a cooling labour market. However, prospects of further tightening from the Fed could keep the US Dollar moderately supported.
Meanwhile, the Euro could finally see data-related movement with the release of the latest PMIs. However, both the manufacturing and services sectors are predicted to experience a slowdown, which could weigh on the Euro.