Euro US Dollar Exchange Rate Rangebound as ECB Takes Focus
The Euro US Dollar (EUR/USD) exchange rate is trading in a narrow range this afternoon as EUR investors await the European Central Bank’s (ECB) next interest rate decision. Meanwhile, the US Dollar (USD) is under pressure amid a risk-on mood.
At the time of writing, the EUR/USD exchange rate is trading at around $1.07, virtually unchanged from today’s opening levels.
Euro (EUR) Muted as ECB Takes Centre Stage
The Euro (EUR) is flat against the US Dollar today as EUR investors await the ECB’s latest interest rate decision.
EUR investors are expecting the bank to preserve its current interest rate of 0%. As this is largely priced-in however, the attention is on the bank’s forward guidance.
Should the ECB deliver a broadly hawkish forward guidance, it may improve interest rate hike bets for the bank’s July meeting.
Economists at Bloomberg commented:
‘The majority of the Governing Council seems to be in support of a smaller move, but market participants will be closely watching remarks after the ECB’s meeting on June 9 for hints that the hawks are once more gaining the upper hand.’
In preparation of an interest rate hike, the bank is expected to begin the process of ending its bond purchases.
US Dollar (USD) Subdued in Response to Risk On Sentiment
The safe-haven US Dollar is muted against the majority of its peers this afternoon as a risk on market mood prevails.
This comes as China, the manufacturing capital of the world, eases lockdown restrictions and reopens its economy.
On Saturday, Goldman Sachs China Economist Lisheng Wang and a team said in a report:
‘Our high-frequency trackers suggest that barring another severe Covid resurgence and related lockdowns, mobility, construction and ports operation could recover to pre-lockdown levels in around one month.’
In response, the recent fears of a global recession have somewhat eased, causing investors to favour riskier assets at the expense of the safe-haven US Dollar.
Euro US Dollar Forecast: Underwhelming German Factory Orders to Dent the Euro?
Looking ahead, the Euro US Dollar exchange rate could be pressured by the release of Germany’s latest factory order figure tomorrow.
Following a massive contraction in March, economists are predicting a modest rebound in order growth in April, but another underwhelming release could push the euro lower.
As for the US Dollar, it will be impacted by the latest US inflation reading, scheduled for release at the end of the week.
In May, US inflation is expected to decrease from 6.2% to 5.9%. The decline may dampen the Federal Reserve’s interest rate hike bets and dent USD exchange rates.
Moreover, the US trade balance may weigh on the US Dollar’s appeal: in April, the US trade deficit is expected to widen further.