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Euro US Dollar (EUR/USD) Exchange Rate Rangebound as Markets Brace for Fed’s First Rate Decision of 2019

EUR/USD Exchange Rate Steady in Run-up to Fed Policy Meeting

The Euro US Dollar (EUR/USD) exchange rate is rangebound this morning as investors becoming increasingly dovish ahead of the Federal Reserve’s upcoming rate decision.

At the time of writing the EUR/USD exchange rate is currently trading at $1.14, virtually unchanged from today’s opening rate.

US Dollar (USD) Muted Ahead of Fed Rate Decision

The US Dollar (USD) appears to be in a holding pattern this morning as markets brace for the Federal Reserve’s first rate decision of the year.

The Fed struck an aggressive tone following its previous policy meeting, raising interest rates and targeting two additional hikes in 2019 back in December.

However since then we have witnessed a noticeably dovish shift in Fed communication, with the language used by Fed Chair Jerome Powell over the last month hinting at the bank adopting a more cautious approach to monetary tightening in 2019 than previously thought, amid signs of a global slowdown.

USD investors forecast this will result in a more dovish outlook from the bank on Wednesday, with the US Dollar likely to weaken if markets interpret this as a signal that the current tightening cycle has ended.

Bill Diviney, economist at ABN Amro, suggests:

‘We think the 2019 set of voting members will have a more dovish tilt than that of 2018, particularly against the backdrop of a softening growth outlook. This supports our view that the rate hike cycle has come to an end.’

Euro (EUR) Exchange Rates Muted on Dovish ECB

At the same time, the Euro (EUR) is also flat this morning as a lull in Eurozone data leaves EUR investors to dwell on recent signals from the European Central Bank (ECB) that interest rates may be left on hold in 2019.

The latest hints came from ECB President Mario Draghi at the start of the week, when testifying before the European Parliament he said:

‘The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.’

This reinforced comments Draghi made following the ECB’s policy meeting last week, in which he acknowledged recent economic developments in the Eurozone have been disappointing.

EUR/USD Exchange Rate Forecast: Eurozone GDP Figures to Weaken the Euro?

Outside of the Fed’s upcoming rate decision, the main catalyst of movement in the Euro US Dollar (EUR/USD) exchange rate this week is likely to be the release of the Eurozone’s latest GDP estimate on Thursday.

Economists currently forecast that economic growth in the Eurozone will have remained subdued at 0.2% in the fourth quarter.

However these is a risk that growth may have even dipped as low as 0.1%, in light of the bloc’s recent run of gloomy data, which such an outcome likely to place considerable pressure on the Euro.

Meanwhile USD investors will also be focused on the latest US payroll figures this week, with the US Dollar potentially weakening if US employment growth tumbled in December as forecast.