EUR/USD to extend the downtrend without support from elected officials

EUR/USD has been dropping as the safe-haven dollar gains in response to the cautious Fed decision. On Thursday, US jobless claims and fiscal stimulus talks are set to determine the next move, Yohay Elam, an analyst at FXStreet, reports.

Key quotes

“The recovery path is uncertain but the Federal Reserve is unlikely to act anytime soon – that narrative has been weighing on markets and boosting the safe-haven dollar. The Fed signaled to keep rates around zero through 2023, following through on its new policy to target average inflation. Jerome Powell, Chairman of the Fed, said that the current level of bond-buying is appropriate, seeming reluctant to inject more cash.” 

“Growth forecasts for 2020 were upgraded to a contraction of only 3.7%, yet the bank also downgraded the 2021 projection to an increase of around 4%. As in previous appearances, the Fed stressed that the recovery depends on the course of the virus and that it is highly uncertain.” 

“EUR/USD hit the lowest in a month, but will it continue lower? The answer mostly depends on Congress – as Powell also hinted. He said that ‘My sense is that more fiscal support is likely to be needed’ – seemingly indicating that the Fed played its part, also hinting nothing new is coming.” 

“For investors, the larger and sooner the help from Uncle Sam, the better. The opposition party originally passed a bill worth $3.4 trillion while Republicans recently accepted less than $1 trillion.” 

“Several economic figures are due out later in the day, most notably weekly jobless claims. US building permits, housing starts, and the Philly Fed Manufacturing Index are also out.”