Currency News

Daily Exchange Rate Forecasts & Currency News

Euro US Dollar (EUR/USD) Exchange Rate Advances as Markets Eye Fed Meeting

March 19, 2018 - Written by John Cameron

The Euro US Dollar (EUR USD) exchange rate is rallying this afternoon, recouping this morning’s earlier losses amid speculation regarding the Federal Reserve’s March rate decision later this week.

US Dollar (USD) in Holding Pattern Ahead of Fed Rate Decision



The US Dollar appears to be consolidating its gains this morning, trending lower against the Euro and the majority of its other peers as investors await the Federal Reserve’s latest rate decision later this week.

The Federal Open Market Committee (FOMC) is overwhelming expected to vote to raise interest rates from 1.25% to 1.5% on Thursday, with CME Group’s FedWatch tool currently putting the odds of a rate hike this month at over 93%.

However the near certainty of the hike means that the move has already been largely priced in by investors, suggesting that the hike itself will likely have little impact on the US Dollar exchange rate.

Instead the main focus in now on whether this is likely to be the first of up to four rate hikes in 2018, or if the Fed is more likely to stick to its initial plans of just three.

Ulrich Leuchtmann, head of FX strategy at Commerzbank said;

‘By itself, a rate hike is not sufficient to lift the dollar considerably from current levels and we would have to see a shift in the Fed’s `dot plot’ projections or hawkish talk despite the recent rise in bond yields.’

Advertisement
There has been considerable speculation in recent months regarding the possibility of the Fed accelerating the pace of monetary tightening this year, particularly following the appointment of Jerome Powell as Fed Chair in February and his subsequent hawkish remarks in a testimony in front of Congress.

However this has been equally tempered by lacklustre inflation, with last week’s Consumer Price Index showing that inflation remains fairly subdued despite the pick-up in both employment and wage growth.

This has led many economists to forecast that Fed may choose to strike a more dovish tone on Thursday and talk down the possibility of further monetary tightening in 2018, an outcome that will likely drag on the US Dollar.

Euro (EUR) Bolstered by Reports of ECB Rate-Hike Discussion



Meanwhile the Euro’s advance this afternoon comes amid media reports that European Central Bank (ECB) officials were preparing to discuss the future of its monetary policy as pertaining to interest rates hikes.

This prompted a revival in speculation that the ECB could seek to raise interest rates in the near-future.

This has also helped to dispel concerns that the Euro had been overbought in recent months as investors flocked to the single currency in the first couple months of the year.

Chuck Tomes, senior investment analyst at Manulife Asset Management said;

‘It makes people more comfortable with the euro’s strength, as people will monitor for any shift in ECB policymakers’ tone.’

However it still appears unlikely that the ECB will seek to implement a rate hike any time this year as Eurozone inflation remains well below the bank’s target rate of 2%.

EUR/USD Exchange Rate Forecast: Fall in German Economic Sentiment to Pressure Euro



Looking ahead the key driver of movement in the EUR/USD exchange rate this week will of course be Thursday’s rate decision by the Fed.

However in the run up to the rate decision the EUR/USD pairing could also be moved by the release of Germany’s latest Economic Sentiment Index on Tuesday.

Economists forecast that the index will have slumped from 17.8 to 13.1 in March as economic confidence within the Eurozone is hit by concerns that the bloc has begun to lose momentum at the start of 2018.

Meanwhile the recent political uncertainty in Washington could continue to impact the US Dollar in the first half of this week, with any further shake ups within the White House unlikely to be met by confidence by currency markets.

Like this piece? Please share with your friends and colleagues:

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.


TAGS: Euro Forecasts

Comments are currrently disabled