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Euro US Dollar (EUR/USD) Exchange Rate Climbs on Dovish Fed Rate Hike

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Euro US Dollar (EUR/USD) Exchange Rate Soars as Fed Posts Dovish Hike

The Euro US Dollar (EUR/USD) exchange rate is climbing this morning, following the Federal Reserve’s dovish rate hike.

At the time of writing, EUR/USD is trading at around US$1.1145, rising by just under 0.6% from the morning’s opening rates.

US Dollar (USD) Weakens amid Dovish Fed Hike

The US Dollar (USD) is enduring selling pressure this morning, as markets continue to mull last night’s policy announcement from the Federal Reserve.

The Fed hiked interest rates by 25bps as expected, but the commentary and policy thereafter was more muddled.

While Fed Chair Jerome Powell explicitly outlined that the Fed could hike again if necessary, the bulk of his comments lay elsewhere. He indicated that the Fed was more likely to keep rates at a restrictive level, as opposed to cuts or hikes.

He stated:

‘It is certainly possible we would raise funds again at the September meeting if the data warranted, and I would also say it is possible we would choose to hold steady at that meeting.’

In reaction, analysts are suspecting that last night’s hike was the last on the cards from the Fed. Because of this, the market mood appears more upbeat, weighing on the safe-haven ‘Greenback’. Less tightening in America is likely a good sign for global economic growth prospects, as the fight against inflation appears to be reaching an end.

Euro (EUR) Firms ahead of ECB Decision

The Euro (EUR) is seeing modest support this morning, as investors await the ECB’s interest rate decision.

Investors anticipate a 25bps rate hike, which has functionally been priced in since the previous meeting. However, questions do remain over the direction the ECB will take from here on out.

Some analysts have grown to suspect that the bank may take a more dovish route, following sharp cooldowns in inflation and a deteriorating economy. If this is the case, the common currency would likely erase its gains and weaken over today’s session.

Yet, this doesn’t guarantee a hawkish set of forward guidance would be welcomed. While it could provide an initial spike, growing economic anxieties may cap any gains.

EUR/USD Exchange Rate Forecast: German Data to Dent Euro?

Looking ahead for the Euro, tomorrow brings the release of two impactful slates of German data. First up, the latest German GDP growth rates. On a quarterly basis, Q2 GDP is forecast to print at 0.1%, while the yearly reading is expected to be -0.3%.

Therefore, the Euro may be unable to capitalise on news that the Eurozone’s largest economy has swerved a recession.

This is then followed by the latest German inflation data. This is forecast to cool to 6.2% from 6.4%, which could bring further selling pressure to the Euro.

For the US Dollar, the core catalyst of movement is likely to be Friday’s core PCE price index data. As the Fed’s preferred gauge of inflation, the forecast of a cooldown to 4.2% may weigh heavily on USD.

Elsewhere, risk appetite will likely play a role in driving the pairing. A sour market mood could lead to the safe-haven ‘Greenback’ eclipsing the common currency.