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Euro US Dollar (EUR/USD) Exchange Rate Drifts Higher, Fed to Adopt More Dovish Outlook?

EUR/USD Exchange Rate Buoyed Ahead of Fed Policy Decision

The Euro US Dollar (EUR/USD) exchange rate edged higher on Wednesday as markets remained wary of the ‘Greenback’ in the run up to the Federal Reserve’s latest policy decision.

At the time of writing the EUR/USD exchange rate is currently trading at $1.1226, leaving the paring trading close to a one-week high.

Cautious Fed to Undermine the US Dollar (USD)?

The US Dollar (USD) if drifting lower against the Euro (EUR) and the majority of its other peers today, as investors sought avoid the US currency ahead of the Federal Reserve’s rate decision later this evening.

While no policy changes are expected from the Fed today, some analysts are predicting that the bank may strike a more dovish tone this evening, despite headline US GDP figures coming in stronger-than-expected in the first quarter.

However few expect the Fed to take heed of President Donald Trump’s recent call to cut interest rates after he accused the Fed’s recent hikes of undermining his attempts to boost economic growth.

With the bank expected to remain in a ‘wait and see’ mode, the focus will instead be on the Fed’s policy statement and Fed Chair Jerome Powell’s accompanying press conference.

This could result in the US Dollar moving lower this afternoon should Powell’s remark hint towards a more dour growth outlook from the Fed this year.

Euro (EUR) Exchange Rates Steady amid Thin Trade

Meanwhile, the Euro (EUR) struggled to capitalise on the US Dollar’s (USD) weakness today as the closure of European markets for international workers day lead to thinner trade in the single currency.

However following on from Tuesday’s run of solid data, there is little risk of the Euro falling back, particularly after GDP surprised on the upside by jumping to 0.4% in the first quarter.

This was far stronger than recent Eurozone PMIs implied and appears to quash any concern that the Eurozone could fall into a recession this year.

EUR/USD Exchange Rate Forecast: Rebound in Eurozone Inflation to Support the Euro?

Looking past the Fed’s upcoming rate decision, the Euro US Dollar (EUR/USD) exchange rate may maintain its upward trajectory through to the end of this week’s session as the Eurozone publishes its latest Consumer Price Index.

Economists forecast the index will show that after slowing to an 11-month low in March, core inflation in the bloc will have bounced back last month, potentially lending some support to the single currency.

However in the meantime the release of Germany’s retail sales figures could undermine the Euro as analysts predict sales growth will have contracted 0.4% in March.

Meanwhile the focus for USD investors will be on the US payroll figures on Friday, which despite a slight slowing in payrolls in April could still boost the US Dollar if wage growth rallied as expected last month.