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Euro US Dollar Exchange Rate Rises as USD Investors Cautious Ahead of Fed Rate Decision

Euro US Dollar (EUR/USD) Exchange Rate Rises as USD Investors Await Fed Rate Decision

The Euro US Dollar exchange rate has climbed today as EUR traders ‘buy the dip’ whilst European bond yields rise. Investors may also holding off on significant USD bets ahead of the Federal Reserve’s Wednesday meeting.

At time of writing the EUR/USD exchange rate is at around $1.3246, which is up roughly 0.3% from this morning’s figures.

Euro (EUR) Climbs as Traders Buy Dip ahead of ECB Meeting

The Euro has risen against its other ‘safe-haven’ rivals today as investors buy the dip amid rising European bond yields.

A reported rise in industrial production for October across the euro area is also likely to have helped the currency move further upwards. Output rose in line with forecasts by 1.1% and was largely boosted by significant industrial in Germany. Analysts are hoping these figures could help underpin the European economy in the face of the Omicron variant.

Melanie Debono, senior Europe economist at Pantheon Macroeconomics, had the following analysis of the production figures:

‘We think that the sector will support the economy this quarter despite the fact that lingering supply constraints and the ongoing energy crunch will keep a lid on output and that the return of the virus risks exacerbating supply bottlenecks.’

These inflationary pressures could also influence the European Central Bank’s interest rate decision ahead of the central bank’s meeting on Thursday. The ECB has been notoriously dovish in regards to rising inflation and interest rates so a rate hike is unlikely, but a rate rise from the rival Federal Reserve could see confidence in EUR fall.

US Dollar (USD) Slips as Investors Await Fed Meeting

The US Dollar has dipped today as investors eagerly await the Federal Reserve’s interest rate decision on Wednesday.

The Fed has taken a particularly hawkish stance in comparison to the other major central banks, and analysts are anticipating an interest rate rise to be announced on Wednesday. Food and goods prices have risen at their fastest pace since 1982 which could be seen by investors and the Fed as further evidence for an early rate rise. Investors are likely to flock to the ‘Greenback’ should the hike go ahead.

The US Dollar could see some domestic headwinds this week however, as an ongoing battle in the US Congress to raise the federal government’s debt limit raised the risk of an unprecedented default. The bill is expected to pass, but any difficulties could push USD down.

EUR/USD Exchange Rate Forecast: All Eyes on Central Bank Meetings

Looking to the week ahead, all eyes are on the meetings of the major central banks. The ECB meets on Wednesday and is expected to leave interest rates unchanged, whereas investors await an anticipated rate rise by the US Federal Reserve.

Significant data for the euro area could give further credence to the ECB’s dovish stance, as inflation for November is forecast to fall. In contrast, composite flash PMIs ahead of the ECB meeting are forecast to show a fall across all sectors however as inflation and the Omicron variant continues to bite. These figures could prompt some speculative bets on the Euro should investors see it as a potential influencer of the ECB’s decision.

Ahead of the Federal Reserve’s meeting on Wednesday, retail sales figures for November earlier that day are expected to show a fall as supply chain issues and Omicron fears affect consumer confidence. Should these figures print as expected then it is likely to give further fuel to the Fed to raise interest rates ahead of schedule.