EUR/USD Exchange Rate Struggles ahead of Federal Reserve’s March Policy Decision
Despite analysts predicting a cautious optimism from the Federal Reserve, the Euro to US Dollar (EUR/USD) exchange rate has continued to trend lower this week so far. Investors are hesitant to buy the Euro (EUR) due to strength in rival currencies.
Last week saw the Euro briefly benefit from US Dollar (USD) weakness, as EUR/USD recovered from 1.1913 to 1.1953 throughout the week.
However, EUR/USD did touch on a 2021 low of 1.1838 last week, and is trending with a downside bias this week so far. At the time of writing on Wednesday, EUR/USD trends in the region of 1.1911.
The Federal Reserve’s March policy decision is ahead, as well as comments from European Central Bank (ECB) officials and key Eurozone and US data.
Euro (EUR) Exchange Rates Struggle amid Lack of Fresh Support
Demand for the Euro remains limited in recent weeks. The Euro has lacked much in the way of solid drive as the Eurozone’s coronavirus outlook remains mixed, which has left the shared currency being driven largely by movements in rivals instead.
As the Euro is the US Dollar’s biggest rival, the Euro often weakens in times of US Dollar strength. This has been part of the Euro’s poor performance in recent sessions.
Recent Eurozone data has done little to improve the outlook. Eurozone inflation met expectations today, and Germany’s government cut its latest growth forecasts.
US Dollar (USD) Exchange Rates Resilient Ahead of Federal Reserve
The US Dollar has seen fairly strong demand in recent weeks. It has been rebounding from its lows as US fiscal stimulus is passed and there are more signs of recovery in the US economic outlook.
Investors continue to buy the US Dollar amid speculation that the Federal Reserve could take a more hawkish stance on the US economy and monetary policy.
This is despite previous signals from the bank that policy would not be tightened without a sustained rise in US inflation.
Continued strength in US yields are also supporting USD. According to Antje Praefche, Analyst at Commerzbank:
‘US yields might receive further upwards thrust and pull the Dollar along with them in the absence of a clear commitment on the part of the Fed that a further rise in yields is undesirable’
Euro to US Dollar (EUR/USD) Exchange Rate Direction Could Shift on Central Bank News
The Euro to US Dollar exchange rate could see a notable shift in movement in the coming sessions, depending on how central bank developments and data unfold.
This evening will see the Federal Reserve hold its March policy decision, the biggest even of the week for the US Dollar. If the Fed takes a firmer stance on hawkish market speculation, some of the US Dollar’s recent appeal could soften.
On the other hand though, if the Fed surprises markets with a hawkish shift, the US Dollar could see an even bigger surge in demand and push EUR/USD lower.
The Euro will remain influenced by movement in rivals like the US Dollar, but upcoming Eurozone news could influence the shared currency as well.
Tomorrow will see speeches from European Central Bank (ECB) President Christine Lagarde. If Lagarde shows more dovishness, the Euro may remain unappealing and struggle to gain back ground against the US Dollar.
Upcoming key data, including Eurozone wages and US jobless claims, could also influence the Euro to US Dollar (EUR/USD) exchange rate tomorrow.