Euro: Firm Dollar keeps pressure on Euro before FOMC - Danske Bank

FXStreet Insights Team FXStreet

Danske Research Team notes that the US Dollar (USD) remained firm, pushing EUR/USD modestly lower as risk sentiment weakened. In the euro area, Germany’s September ZEW survey showed a sharp improvement in current conditions, while expectations disappointed. The team says attention now turns to the FOMC meeting, where it expects a 25bp rate hike alongside updated economic projections and dot plots.

Dollar strength persists into FOMC

"Broad USD remained on a strong footing yesterday and EUR/USD declined modestly, as risk sentiment continued to sour."

"In the euro area, the German ZEW index in September showed a markedly better assessment of the current situation, but expectations for future growth disappointed. The assessment of the current situation rose to -47.1 (cons: -52.1, prior: -61.1), which is the highest level in three and a half years. The rebound in German growth is especially due to the significant fiscal easing and a rise in manufacturing orders."

"However, expectations for future growth disappointed, as they remained at 34.7 (cons: 40.0, prior: 34.2). This likely reflects the recent tightening in financial conditions and higher energy costs. The impact of these factors will likely take some months to affect growth, given the lag lengths in German retail energy and rate pricing, which the September ZEW survey reflects well."

"In the US, the main event of the week will be the FOMC meeting tonight. Previously this week we revised our call now expecting a 25bp rate hike at the meeting. Given the current market pricing (90% probability of a hike), and the fact that we have long argued rate hikes are eventually on the horizon in any case, tightening now likely represents the path of least resistance."

"We do not think the decision is a completely done deal, and we believe there will be 2-3 dissenters in favour of a hold. We still expect the FOMC to publish its updated economic projections and 'dots', even if Warsh opts out from submitting his personal views again. In the afternoon US retail sales for August is released too."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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