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Euro US Dollar (EUR/USD) Fluctuates ahead of Key US Data

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Euro US Dollar (EUR/USD) Wavers ahead of US Economic Reports

The Euro US Dollar (EUR/USD) exchange rate is trapped in a narrow range, with notable data in short supply until later today.

At the time of writing the EUR/USD exchange rate is trading at $1.0779, virtually unchanged from this morning’s opening rate.

US Dollar (USD) Quiet Ahead of Key Data

The US Dollar (USD) is muted ahead of key data releases this afternoon.

Investors appear reluctant to place any aggressive bets on the ‘Greenback’ ahead of impactful economic releases later today, including the Michigan consumer sentiment index.

However, the Federal Reserve’s continually hawkish narrative surrounding monetary policy seems to be keeping USD afloat.

Fed Raphael Bostic affirmed during a speech yesterday:

‘We have made substantial and gratifying progress in slowing the pace of inflation. My expectation is that the rate of inflation will continue to decline, but more slowly than the pace implied by where the markets signal monetary policy should be.’

Though typically regarded as one of the more neutral members of the Fed’s monetary policy committee (MPC), Bostic’s hawkish shift in recent weeks has served to underpin market expectations that the central bank will likely keep interest rates ‘higher for longer’, serving to boost USD sentiment.

Euro (EUR) Buoyed by ECB’s Data Driven Approach

The Euro (EUR) is moving without a clear direction today amid a lack of notable economic data.

However, much like its USD counterpart, commentary from European Central Bank policymaker Isabel Schnabel this morning serves to cushion EUR’s downside, as the ECB hawk continues to argue against premature interest rate cuts.

Schnabel commented:

‘Persistently low, and recently even negative, productivity growth exacerbates the effects that the current strong growth in nominal wages has on unit labour costs for firms. This increases the risk that firms may pass higher wage costs on to consumers, which could delay inflation returning to our 2% target.’

While the ECB has highlighted its data-driven approach in recent commentary, policymakers are reluctant to make any hasty changes to monetary policy, which could they fear could have adverse economic effects.

This leaves the common currency rangebound today, as an ongoing lack of clarity as to when the ECB will begin its loosening cycle seemingly leaves the Euro flat.

Euro US Dollar Exchange Rate Forecast: US Data in Focus

As detailed, this afternoon the Michigan consumer sentiment’s preliminary reading is due for release and could drive USD movement. Economists expect the index to rise from 79 to 80 in February’s estimated reading, which could serve to lift the ‘Greenback’ amid signs of increased US economic optimism.

Also due for release is the latest producer’s price index (PPI). Often used a precursor to wider inflationary data, a forecast warming by 0.1% may underpin the Federal Reserve’s recently hawkish rhetoric, further sinking Fed rate cut bets and thereby boosting the ‘Greenback’.

A speech from Fed policymaker Tom Barkin could spark additional USD volatility amid impactful data releases this afternoon. Should Barking continue to advocate for restrictive monetary policy in the coming months, USD may strengthen.

Looking to the Eurozone, a lack of immediate economic data may leave the common currency vulnerable to continually tepid commentary and lacklustre economic projections from ECB policymakers.