Euro US Dollar (EUR/USD) Exchange Rate Strengthens as 1% Fed Rate Rise Looks Unlikely
The Euro US Dollar (EUR/USD) exchange rate is climbing away from parity today, after the currency pair briefly dipped below $1 last week. The movement comes as markets rein in bets for a 100-basis-point rate rise at the Federal Reserve’s next meeting.
At the time of writing, EUR/USD is trading at a one-week high of $1.017.
Euro (EUR) Continues Recovery from Parity
The Euro (EUR) continues to recover from last week’s fall to parity with the US Dollar (USD) as investors buy the oversold single currency.
After EUR/USD broke below parity last week, analysts speculated that the Euro had entered oversold conditions and would soon stage a rebound. This came to fruition, with EUR continuing to correct its position today.
Supporting the single currency is an upbeat mood among European investors, driven in part by the receding likelihood of a 1% rate rise from the Fed.
EUR investors are also perhaps looking forward to the European Central Bank (ECB) interest rate decision on Thursday, which should see the bank raise rates by 25 basis points and hint at plans for further tightening.
US Dollar (USD) Falls as Fed Bets Recede and Risk Appetite Improves
The US Dollar is declining today as markets pare back bets for a 100-bp rate hike from the Federal Reserve.
Last week, investors began pricing in a supersized rate rise after the Bank of Canada (BoC) enacted a 1% hike and US inflation came in hot, jumping from 8.6% to 9.1%.
However, on Friday Fed officials were quick to push back. Even some of the more hawkish voices from the Federal Open Market Committee (FOMC) signalled that a 100-bp hike was unlikely. This is continuing to push the US Dollar lower today.
In addition, a risk-on market mood is sapping the appeal of the safe-haven ‘Greenback’.
EUR/USD Exchange Rate Forecast: Risk Appetite in Focus
Economic data is fairly thin on the ground today, so Fed expectations and risk appetite may continue to drive most movement in EUR/USD. If the market mood remains upbeat, the single currency could continue to recover.
Tomorrow, the Eurozone’s final inflation rate is expected to confirm initial estimates of a 0.5-percentage-point jump. The finalised results could further boost the Euro ahead of the ECB meeting later in the week.
As for the US Dollar, a speech from Fed Vice Chair Lael Brainard tomorrow evening may cause some movement. Will Brainard also dismiss a 1% rise, thereby denting USD?