Euro US Dollar Exchange Rate Trends Sideways as Investors Await Interest Rate Decision
The Euro US Dollar (EUR/USD) exchange rate is trading in a narrow range this morning as investors trade cautiously ahead of the Federal Reserve’s interest rate decision and press conference this afternoon.
At the time of writing, the Euro trades at $1.1810, virtually unchanged from opening levels.
US Dollar (USD) Wavers on Mixed Market Mood, Fed Decision Awaited
The US Dollar (USD) is trading in a narrow range against most of its peers today as investors await the Fed’s forward guidance. The central bank is not expected to change its monetary policy yet, as Chairman Jerome Powell recently said that tapering is still ‘a ways off’.
Rising inflation over the past six months prompted the Fed to open the debate about buying fewer bonds, but the consensus remains that current high levels are transitory, relating to the rapid reopening of society after lockdown.
There’s an additional reason to expect a dovish announcement from Powell today: while recent data has shown a rise in the Consumer Price Index (CPI) as well as increased levels of employment, the Delta Covid variant is raging around America still. Average cases rose to 56,592 on Monday- the highest figure since this time last month.
According to BNY Mellon’s Chief Economist Vincent Reinhart, ‘The argument to be patient is much stronger and Jay Powell is a patient guy. They are worried about the pandemic, of course … there is a long way to go.’
A dovish decision from the Fed is likely to weaken the US Dollar as it signals the next interest rate rise is still a way off.
Euro (EUR) Gains Capped by Coronavirus Concerns
The Euro (EUR) is holding steady against the US Dollar this morning on a mixed market mood – but struggles to capitalise on USD traders’ bearish sentiment ahead of the Fed decision later today. As Coronavirus cases rise in France, Italy and Germany, cautious trading is on.
At the beginning of summer in Europe, vaccine coverage was rising, testing was widely available and warm weather was reducing opportunities for the virus to spread. Hospitalisations are now rising, however, amongst both vaccinated and unvaccinated individuals, and the daily number of cases is reaching a level of 1,000 new cases per million people or more each day.
Politico reports: ‘There’s much to do. We need to use this time to install improved ventilation systems before winter sets in. We need to scale up vaccination programs, with a renewed effort to bring in groups who remain relatively unprotected.’
Fortunately, the Euro is able to resist excessive downside pressure by way of positive data releases out of America. The Conference Board’s consumer confidence beat estimates and durable goods orders also look upbeat when considering upward revisions.
Such positive data summons optimism and a risk-on mood, which is unfavourable to the safe-haven dollar and consequently boosts the Euro as a result of the strong negative correlation in the currency pair.
Euro US Dollar EUR/USD Exchange Rate Forecast: Fed Decision Takes Centre Stage
Forward guidance issued by the Federal Reserve later today will decide near-term movement in the currency pairing; if a dovish tone is struck as expected, the US Dollar may sink down against its peers.
Later in the week, various GDP releases are expected to show economic expansion across America, Germany and the general Euro Area, boosting trading sentiment and potentially driving traders towards riskier currencies.
The biggest expansion is expected to occur in American GDP, with analysts predicting a rise of nine percent in the second quarter.