Euro US Dollar (EUR/USD) Exchange Rate Drops as Investors Anticipate ECB Pause
The Euro US Dollar (EUR/USD) exchange rate is weakening today, as investors anticipate the latest interest rate decision from the European Central Bank (ECB).
At the time of writing, EUR/USD is trading at around US$1.0537, a fall of just under 0.3% from the morning’s opening rates.
Euro (EUR) Edges Lower ahead of ECB Decision
The Euro (EUR) is wavering lower today, as investors anticipate the latest interest decision from the European Central Bank.
The ECB is widely expected by markets to keep interest rates paused at 4.5%, ending an extended and historically aggressive tightening cycle.
As such, the Euro is weakening as investors shy away from making significant bets on the common currency.
Attention will be on any forward guidance the bank provides in its accompanying conferences. If the ECB changes tact from recent communication and goes for a hawkish approach, the Euro could gain ground.
However, the likelihood is that due to recent inflation cooldowns, the Bank may maintain its dovish outlook. Because of this, the common currency may weaken this afternoon.
US Dollar (USD) Quiet ahead of GDP Data
The US Dollar (USD) is trading quietly so far this morning, as investors look ahead to the latest US GDP growth data.
Due this afternoon, economists have forecast a significant increase in American economic growth, with Q3 expected to show a 4.3% increase. Consumer spending appears to have remained robust in America, despite high interest rates and elevated inflation.
Sal Guatieri, Senior Economist at BMO Capital Markets, commented:
‘The American consumer, the biggest engine of the U.S. economy seems to have had a mid-year resurgence, largely because confidence improved through the summer because of the rally in the stock market and steadier gasoline prices.’
This could prove to be a double edged sword for the US Dollar. While such a strong increase in economic activity could bring an influx of support, it may also improve the market mood.
If this occurs, the US Dollar could edge lower after a brief spike of support. This could also serve to strengthen EUR/USD due to the pairing’s negative correlation.
However, it may also indicate that the US economy has capacity to withstand further interest rate hikes. As such, Federal Reserve hike bets could pick up, bringing additional tailwinds.
Euro US Dollar Exchange Rate Forecast: Core PCE Cooldown to Dent USD?
Looking ahead for the US Dollar, tomorrow brings the latest core PCE price index, reflecting September’s levels.
As the Federal Reserve’s preferred inflation gauge, predictions of a cooldown could weigh heavily on USD. If the reading cools in line with forecasts, Fed hike bets would likely recede, bringing additional headwinds.
For the Euro, the data calendar is set to lighten through to the end of the week. Because of this, the common currency may struggle to find clear direction.
Risk appetite is likely to be a driving force for EUR/USD as well. As safer currencies, further degradation in the market mood could yield support. However, with USD being the safer option, the ‘Greenback’ would likely rise over EUR.
