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The Euro Exchange Rate Ticks Higher Ahead of Key Fed Policy Meeting

September 18, 2017 - Written by John Cameron

The euro to dollar exchange rate is maintaining a positive bias on Monday 18th September, quoted at 1.19607 during the European session.

EUR/USD is slightly unstable at the start of this week’s session as markets look towards the Federal Reserve’s policy meeting later this week.

US Dollar (USD) Volatile in Face of Fed Meeting



The US Dollar is fluctuating at the start of this week’s session as markets await the Federal Reserve latest policy meeting on Wednesday, with some analysts calling the upcoming meeting the ‘biggest meeting of the year’ for the central bank
This is primarily due to the market expectation that the Fed will announce its plans to begin reducing its $4.4 trillion balance sheet at the conclusion of its September policy meeting.

This will mark the end of the Fed’s expansive quantitative easing programme, which was hastily implemented in the wake of the financial crisis a decade ago, in an effort to try and stimulate the economy.

However possibility even more important will be the bank’s tone in regards to a possible rate hike later this year.

CME’s FedWatch tool currently places the odds of a December rate hike from the Fed at about 50/50 so the tone of this week’s meeting could have considerable impact on US Dollar sentiment, especially should the Fed remain committed to one final rate hike in 2017.

Marc Ostwald of ADM Investor Services said;

‘Markets anticipate that the Fed will keep rates unchanged (with a December rate hike now seen as 50/50), but announce that it will commence balance sheet reduction at a pace of $10bn per month in Q4.’

‘The statement will doubtless keep the option of a December rate hike clearly on the table, but markets will as ever hone in on the ‘dot plot’, with many expecting the likes of Brainard to perhaps adjust their trajectory lower.’

However with US retail sales having tumbled in August due to Hurricane Harvey and September’s figures expected to have also been hit by Hurricane Irma, some analysts suggest that the Fed may not wish to commit to another rate hike until it is clear that activity has begun to rebound again.

Paul Ashworth, chief US economist at Capital Economics suggested;

‘The Fed won’t want to commit to another rate hike until it is sure that activity is rebounding after the storm disruption.’

‘That’s why, even though core consumer prices are showing some resurgence, we now expect the Fed to stand pat on rates for the rest of this year.’

Euro (EUR) Strengthened by Inflation Report



The Euro meanwhile found strengthen this morning as the Eurozone’s latest Consumer Price Index (CPI) confirmed that inflation rose in line with expectations last month.

According to data published by the Eurozone’s statistics body Eurostat, showed that the bloc’s CPI figures jumped from 1.3% to 1.5% in August its highest rate since April.

While this is still below the European Central Bank’s (ECB) target rate of 2%, the jump is likely to renew hopes that the bank could begin discussing plans to taper it stimulus programme sometime in the near future, a prerequisite for the bank to begin raising interest rates.

However with the jump largely being prompted by a rise in energy prices and core inflation remaining flat at 1.2%, the ECB may still make the case that inflationary pressure remains below expectations.

EUR USD Exchange Rate Forecast: German Economic Sentiment to Rise in September?



Looking ahead the EUR USD exchange rate may advance tomorrow with the release of Germany’s latest confidence figures, with the nation’s economic sentiment index forecast to have climbed from 10 to 12.5 this month.

Meanwhile while the main focus for USD investors this week with undoubtedly be the Fed rate decision on Wednesday the US Dollar could still be impacted by the release of US export prices on Tuesday, with the ‘Greenback’ possibly slipping if prices fell as expected.

Current Interbank Exchange Rates



At the time of writing the EUR USD exchange rate was trending around 1.1951 and the USD EUR exchange rate was trending around 0.8365.

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