EUR/USD languishes near one-week low amid stronger USD, ahead of US macro data
- EUR/USD drifts lower for the second straight day amid resurgent USD demand.
- Hawkish Fed expectations and the cautious mood boost the safe-haven buck.
- Reduced bets for more aggressive ECB rate cuts could limit any further losses.
The EUR/USD pair comes under intense selling pressure on Wednesday and drops to a one-week low during the first half of the European session. Spot prices, however, show some resilience below the 1.0800 mark and rebound a few pips in the last hour, though any meaningful recovery seems elusive in the wake of a goodish pickup in the US Dollar (USD) demand. Investors now seem convinced that the Federal Reserve (Fed) will wait until the June policy meeting before cutting interest rates. This, along with a turnaround in the global risk sentiment, benefits the safe-haven Greenback.
That said, a fresh leg down in the US Treasury bond yields might hold back the USD bulls from placing aggressive bets. This, along with reduced bets for a more rapid cut in borrowing costs by the European Central Bank (ECB), could lend support to the shared currency and limit the downside for the EUR/USD pair. Investors might also prefer to move to the sidelines ahead of the crucial inflation figures from the Eurozone and the United States (US). The flash CPI estimates from Germany, France and Spain are due for release on Thursday ahead of the US Personal Consumption Expenditures (PCE) Price Index.
This will be followed by the Eurozone inflation data on Friday, which will drive the shared currency, which will play a key role in driving the Euro and providing some impetus to the EUR/USD pair ahead of the ECB meeting on March 7. In the meantime, traders on Wednesday will take cues from the Prelim US Q4 GDP print, which, along with speeches by influential FOMC members, should contribute to producing short-term opportunities around the EUR/USD pair.
Daily digest market movers: Bears seize intraday control amid strong pickup in the USD demand
- The Federal Reserve's hawkish outlook on interest rates, along with the cautious market mood, boosts the safe-haven US Dollar and drags the EUR/USD pair lower for the second successive day on Wednesday.
- Fed Governor Michelle Bowman said on Tuesday that she was in no rush to cut interest rates and that the slower-than-expected progress on inflation has left policymakers cautious about monetary policy stance. This reaffirms bets that the US central bank will wait until June before cutting rates and tempers investors' appetite for riskier assets ahead of the US Personal Consumption Expenditure Price Index on Thursday.
- Meanwhile, the looming US government shutdown and Tuesday's disappointing release of US Durable Goods Orders do little to influence the USD uptick, though retreating US Treasury bond yields might cap gains.
- US President Joe Biden urged Congress leaders to move quickly and emphasized the necessity of finding a solution to avert a detrimental government shutdown as a legislative logjam showed no signs of abating.
- The US Census Bureau reported that orders for long-lasting US manufactured goods registered a steep fall of 6.1% in January, the most in nearly four years and worse than the 4.5% decline anticipated.
- Separately, the Conference Board's Consumer Sentiment Index fell to 106.7 for February after three straight months of gains amid anxiety over potential recession, despite declining inflation expectations.
- Furthermore, the Richmond Fed's Manufacturing Index recorded the fourth successive month of a negative reading, though it improved to -5 in February as compared to -15 in the previous month.
- Traders have scaled back their bets for a rapid reduction in borrowing costs by the European Central Bank and now expect less than 100 bps of rate cuts this year, down from around 150 bps at the start of February.
- The market focus remains on the country-level consumer inflation data from Germany, France and Spain, to be published on Thursday. These data will be followed by the Eurozone region-wide flash CPI print on Friday.
Technical analysis: Break below the 1.0785 horizontal support could pave the way for deeper losses
From a technical perspective, the recent failure ahead of the 1.0900 mark and the subsequent slide below the 200-day Simple Moving Average (SMA) could be seen as a fresh trigger for bearish traders. That said, oscillators on the daily chart are yet to confirm the negative outlook and warrant some caution before positioning for any further losses. Hence, any further downfall is more likely to find decent support near the 1.0785 horizontal zone. The said area should act as a key pivotal point, which if broken decisively could make the EUR/USD pair vulnerable to accelerate the fall back towards retesting sub-1.0700 levels, or a three-month low touched on February 14.
On the flip side, the 1.0850 region seems to act as an immediate resistance, above which the EUR/USD pair could make a fresh attempt to conquer the 1.0900 round figure. Some follow-through buying should pave the way for a further near-term appreciating move towards reclaiming the 1.1000 psychological mark for the first time since January 11.
Euro price today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the weakest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.32% | 0.37% | 0.32% | 0.68% | 0.19% | 1.06% | 0.21% | |
| EUR | -0.29% | 0.08% | 0.01% | 0.39% | -0.13% | 0.77% | -0.10% | |
| GBP | -0.37% | -0.07% | -0.06% | 0.30% | -0.19% | 0.69% | -0.19% | |
| CAD | -0.32% | -0.04% | 0.06% | 0.36% | -0.13% | 0.75% | -0.09% | |
| AUD | -0.70% | -0.39% | -0.32% | -0.38% | -0.51% | 0.38% | -0.48% | |
| JPY | -0.19% | 0.10% | 0.17% | 0.12% | 0.52% | 0.87% | 0.02% | |
| NZD | -1.08% | -0.77% | -0.69% | -0.76% | -0.39% | -0.89% | -0.86% | |
| CHF | -0.21% | 0.11% | 0.16% | 0.10% | 0.49% | -0.02% | 0.85% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
