EUR/USD Exchange Rate Rangebound as Markets Brace for Fed Policy Outlook
The Euro to US Dollar (EUR/USD) exchange rate is currently stuck trading in a narrow range this morning as investors brace for the Federal Reserve’s latest rate decision.
At the time of writing EUR/USD exchange rate is trading at around $1.1081, virtually unchanged from the day’s opening levels.
US Dollar (USD) Steady Ahead of Fed Rate Decision
The US Dollar (USD) is in a holding pattern this morning as markets brace for the conclusion of Federal Reserve’s final policy meeting of 2019.
Having cut interest rates in its previous three policy meetings, the Fed is widely expected to leave rates on hold this month.
Instead the focus for USD investors will be on the bank’s forward guidance as they seek greater clarity on the Fed’s policy plans for 2020.
There has been considerable speculation on what could happen next year, but the growing consensus appears to be that the Fed will seek to keep rates on hold, with recent US economic data painting a picture of a robust economy.
The Federal Reserve has erased nearly half of all the rate increases of the past two years since July — but now the central bank is expected to halt any further cuts even as President Donald Trump continues to push for more. https://t.co/FHfsRS2N0s
— CNN (@CNN) December 11, 2019
Mike Englund, chief economist at Action Economics, suggests:
‘The U.S. economy is ending 2019 with faster GDP, productivity, and hours-worked growth, and lower inflation, than was expected at the start of the year. The same is likely to be true in 2020. Market narratives have underestimated the runway length for this expansion.’
Of course it’s worth mentioning that similar predictions were made at the start of 2019…
Euro (EUR) Knocked by Moody’s Gloomy Outlook for Eurozone Banks
Meanwhile, the Euro (EUR) is struggling to find momentum this morning as markets respond to Moody’s latest outlook report for European banks.
This saw Moody’s downgrade its outlook to negative as the Eurozone continues to wrestle with lacklustre growth and global headwinds.
Moody’s report read:
‘The outlook for European banks has changed to negative from stable. Weakening economic growth in much of the region will cause banks’ loan quality and profitability to decline.
‘The outlook for Euro-area banks is also negative as economic slowdown, continued accommodative monetary policy will erode already weak profitability.’
EUR/USD Exchange Rate Forecast: Robust US Inflation to Support the ‘Greenback’?
Also on the docket for today will be the publication of the US consumer price index (CPI).
This could put some pressure on the Euro US Dollar (EUR/USD) exchange rate in the run up to this evening’s Fed rate decision amidst forecasts US inflation will have strengthened in November.
Economists predict headline inflation will have accelerated from 1.8% to 2% last month, putting it back within the Fed’s target range.
Meanwhile the focus for EUR investors in the second half of the week will be on the European Central Bank (ECB) as it delivers its own rate decision on Thursday.
While no policy changes are expected from the ECB tomorrow, this will be the first policy meeting presided over by new ECB President Christine Lagarde and EUR investors will be watching closely to see how her tenure at the bank may differ from her predecessor Mario Draghi.