Euro US Dollar Exchange Rate Rises as Markets Await Fed Interest Rate Decision
At the time of writing, the EUR/USD exchange rate is trading at around $1.0552, up roughly 0.2% from today’s opening levels.
US Dollar (USD) Slips as Investors Brace for the Fed’s Interest Rate Decision
The US Dollar (USD) is subdued against the Euro (EUR) this afternoon as USD investors await the Federal Reserve’s impending interest rate decision.
The Fed is expected to hike interest rates from 0.5% to 1%. However, as this is largely priced-in, any subsequent movement in USD exchange rates is likely to be dictated by the bank’s forward guidance.
Should the Fed strike a hawkish tone and indicate plans to further accelerate the pace of its current tightening cycle the US Dollar could jump.
In the meantime however, the US Dollar is under pressure from the latest ISM non-manufacturing PMI.
In April, the data printed at 57.1, down from the previous reading of 58.3 and missing market forecasts of 58.5.
This was namely accredited to labour shortages and the slowing of new orders.
The ‘Greenback’ is also being dented by disappointing ADP employment figures.
Last month, 247K individuals were hired. This is down from 479K in March and falls short of the 395K forecast.
Nela Richardson, ADP chief economist, said:
‘While hiring demand remains strong, labour supply shortages caused job gains to soften.
‘As the labour market tightens, small companies with fewer than 50 employees, struggle with competition for wages amid increased costs.’
Moreover, the US trade deficit for March widened further than expected, printing at $-109.8bn, and is further limited demand for the US Dollar.
Euro (EUR) Trades Higher Following Better-Than-Forecast German Trade Balance
The Euro (EUR) is trending higher against the US Dollar (USD) as USD markets remain quiet ahead of the Fed’s interest rate decision.
Elsewhere, the Euro is receiving support from a better-than-expected German trade balance. In March, the nation’s trade surplus came in at €9.7bn versus forecasts of €9.5bn. However, this was still below the previous reading of €11bn.
Moreover, the Eurozone’s final services PMI for April printed at 57.7. This is in line with expectations, and above the previous reading of 55.6.
On the other hand, a weak retail sales reading is limiting the single currency’s upside.
In March, retail sales slowed to 0.8%. This is significantly lower than February’s 5.2% and missed forecast for a 1.4% expansion in sales growth.
Euro US Dollar Forecast: Will the Fed Strike a Hawkish Tone?
Looking ahead, the Euro US Dollar exchange rate will almost certainly be impacted by the Fed’s interest rate decision and forward guidance this evening.
If the Fed strikes a hawkish tone the EUR/USD exchange rate could retest some of its recent lows.
Later in the week, the ‘Greenback’ may be buoyed by the latest US non farm payrolls release, with the US economy forecast to have added another 394K jobs in April, pushing unemployment down from 3.6% to 3.5%.
Meanwhile, the Euro may be influenced by a speech from European Central Bank (ECB) policymaker, Philip Lane. Should Lane take a hawkish stance, it may bolster demand for the single currency.