Euro US Dollar (EUR/USD) Exchange Rate Muted ahead of Fed Interest Rate Decision

Euro US Dollar (EUR/USD) Exchange Rate Narrows as Investors Remain Wary Ahead of Fed Rate Decision

The Euro US Dollar (EUR/USD) exchange rate is trapped in narrow bounds this morning. Investors appear to be remaining wary ahead of this evening’s Federal Reserve interest rate decision.

At the time of writing, EUR/USD is trading around US$1.0787, showing little movement from the morning’s opening rates.

US Dollar (USD) Muted as Controversy Embroils Fed

The US Dollar (USD) is trapped in narrow bounds this morning, as controversy continues to surround the Federal Reserve.

Ahead of this evening’s interest rate decision, the Fed is continuing to come under fire for the collapse of Silicon Valley Bank (SVB). Due to the oversight the Fed held over the bank, questions remain over the competence of some key figures.

Because of this, the ‘Greenback’ may seem unappealing as the potential for political turbulence looms.

While a 25bps hike is now largely priced in, the question remains over further hikes. With the collapse of SVB largely associated with the Fed’s tightening policy, further hikes seem less likely.

Economists at ING think commented:

‘It’s unlikely the Fed will provide much guidance for the May meeting though, but it’s also unlikely we get a so-called dovish hike. The Fed needs to keep some form of pressure on.’

While the recent manoeuvres taken to sooth the US banks have calmed market jitters, USD appears unable to capitalise.

Euro (EUR) Underpinned by Hawkish Lagarde Speech

The Euro (EUR) is trading narrowly this morning, but is seeing modest support following a hawkish speech by European Central Bank (ECB) President Christine Lagarde.

In a speech delivered this morning, President Lagarde remained firm on inflation. She stated:

‘For inflationary pressures to ease, it is important that our monetary policy works robustly in the restrictive direction. And that process is only starting to take effect now.’

However, the upside may have been capped as she also pointed to a need for caution, following recent bank collapses.

Yet, the ECB remaining persistently hawkish is likely going some way to cushion EUR rates. With the door remaining open for future rate hikes, alongside other stability measures, EUR investors appear to be encouraged.

However, later today the Federal Reserve are due to publish their latest interest rate decision. If they go with a hawkish hike, EUR could weaken.

Euro US Dollar (EUR/USD) Exchange Rate Forecast: PMIs in Focus

Looking ahead for the Euro, Monday brings the latest flash PMIs from both Germany and the bloc as a whole. German services and manufacturing indexes are both forecast to tick upward, with the services index remaining in growth.

If this prints accurately, the Euro could strengthen. The bloc’s indexes are forecast to show a similar story, which may reaffirm gains for the single currency.

For the US Dollar, beyond today’s Fed interest rate decision, the initial jobless claims data for the previous week are due. If tomorrow’s print reiterates a tight labour market, USD could rally as room is made for further hiking from the Fed.

Elsewhere, these same PMIs are due for the US. If the US’ private sector indexes slow as expected, with manufacturing ticking down further to 47, USD could struggle.

John Mulcahey

Contact John Mulcahey

Do Not Sell My Personal Information