Euro US Dollar (EUR/USD) Exchange Rate Slumps as Markets Price In Fed Rate Cut
Today’s Euro US Dollar (EUR/USD) exchange rate has slumped, with the pairing currently trading at around $1.1045.
The US Dollar (USD) edged up this morning ahead of the US Federal Reserve meeting in which the central bank is expected to cut interest rates by 25 basis points.
While divisions exist over the necessity for a rate cut, there seems to be a general consensus for a reduction in borrowing costs.
Commerzbank currency strategist Thu Lan Nguyen noted:
‘The focus will be on the policy outlook and the Fed’s dot plots, and with market positioning broadly neutral, it should be a quiet session for the Dollar.’
Following the Fed’s rate decision, markets will be interested to see if the Bank of Japan (BoJ) follows the Fed and European Central Bank (ECB) by implementing its own rate cut.
Euro (EUR) Slides as Inflation Falls Below ECB’s Target
On Wednesday, Eurostat revealed the Eurozone’s August Consumer Price Index (CPI) came in at an annual rate of 1%.
Month-on-month inflation edged up by a lower-than-expected 0.1% and left Euro (EUR) sentiment dampened.
Since October 2018 inflation has remained consistently below the European Central Bank’s (ECB) target of 2%, leaving the single currency under pressure.
US Dollar (USD) Rises as Manufacturing Rebounds
A rebound in last month’s US manufacturing provided an upswing of support for the US Dollar.
Production increased by a higher-than-forecast 0.5% due to a surge in machinery and primary metal production.
However, against a background of trade tensions and a slowing global economy, the outlook for factories remains weak.
The ongoing US-China trade war has strangled US manufacturing, which accounts for around 11% of the US economy.
Fears that the effects of trade tensions will flood out to the wider economy are likely to push the Federal Reserve towards another rate cut.
German Investor Mood Improves Slightly
The Euro was left muted against the US Dollar as Tuesday’s ZEW economic sentiment survey improved to a better-than-expected -22.5 despite the German economy teetering on the edge of recession.
However, a separate measure from ZEW revealed that German investors were growing increasingly pessimistic about the current economic situation.
Euro US Dollar (EUR/USD) Outlook: Will a Dovish Fed Weigh on USD?
This evening’s Federal Reserve rate decision is likely to see the US Dollar (USD) slump against the Euro (EUR) if the Fed slashes rates for the second time this year.
Meanwhile, Thursday’s Philadelphia Fed Manufacturing Index could see the Dollar slide further against the Euro if the September index slumps further than expected.