EURUSD rallies as the Fed’s dovish stance hurts the US dollar.
EURUSD is trading back up around the 1.0900s on Thursday, after jumping higher following the Federal Reserve’s (Fed) meeting. The US central bank kept the policy status quo, slightly surprising markets. That had anticipated a more hawkish change in light of recent higher-than-expected inflation.
EURUSD corrects course as Fed maintains status quo.
The Fed expects three 0.25% interest rate reduction in 2024, same as it did in December.
The Fed maintained the Fed Funds Rate at 5.25%-5.50%, as largely predicted. But in its accompanying outlook The paper. The Summary of Economic Projections (SEP), continued to predict rates decreasing to a median target of 4.6% in 2024, as it did in December.
This equates to expecting three 25 basis point (0.25%) rate reduction this year. Despite some market participants speculating that the number of cuts could be reduced to two due to stickier-than-expected inflation.
It did, however, forecast fewer rate cuts in 2025, with the Fed Funds Rate dropping to a median of 3.9% rather than 3.6% in the December SEP.
The Fed raised its GDP prediction for 2024 from 1.4% in December to 2.1%, indicating a “soft landing” by many.
The central bank’s favored measure of inflation, the Core Personal Consumption Expenditure (PCE) – Price Index was revised upward to 2.6% in 2024 from 2.4% in December.
In his press conference following the meeting, Federal Reserve Chairman Jerome Powell attempted to downplay the latest round of hot inflation readings, claiming that merely two months of data was insufficient to persuade the Fed to change its course.
The general perception was of a “dovish hold,” which resulted in the US Dollar falling from overbought levels. The EURUSD pair, which measures the purchasing power of one Euro (EUR) in US dollars (USD), has recovered back into familiar territory.
European PMI figures ahead
Eurozone PMI data provide the most recent evaluation of the region’s economic well-being.
The next important release for the EURUSD pair is the Eurozone March Purchasing Manager Indices (PMI) from S&P Global and Hamburg Commercial Bank (HCOB). The release date is Thursday, 10:00 GMT.
The flash estimate will provide the most recent view of the region’s economic health.
The HCOB Composite PMI for the Eurozone is predicted to grow to 49.7 in March from 49.2 in February, while the Services PMI is forecast to be 50.5 from 50.2, and Manufacturing at 47.0 from 46.5 earlier.
A higher-than-expected outcome would most likely be positive for EUR/USD, and vice versa for a lower-than-expected result.
