EUR to USD Rate Waits For Further Fed Tightening
The EUR to USD exchange rate moved sideways on Monday as the market shifted its focus to the Federal Reserve. The EUR/USD price is trading at 1.0276, which is significantly higher than this month’s low of 0.9950.
Fed decision ahead
The EUR/USD price is in a tight range as the Fed prepares to deliver another large interest rate hike. The Federal Open Market Committee (FOMC) will start its two-day meeting on Tuesday and then deliver its decision on Wednesday.
Analysts expect that the bank will decide to hike interest rates by either 0.75% or a full percentage point as it continues to battle against the soaring consumer and producer inflation.
Data published this month showed that inflation continued soaring in June as the price of gas surged to $5 for the first time on record. Excluding the volatile food and energy prices, inflation remained substantially above the Fed target of 2%.
The labor market is also tightening. Data published earlier this month showed that the country’s unemployment rate remained at 3.7% as the economy added over 370k jobs.
The EUR to USD exchange rate is also reacting to last week’s interest rate decision by the European Central Bank (ECB). In a statement, the ECB decided to deliver its first interest rate hike in 11 years as Europe faces strong inflation. The bank also hinted that it will continue hiking interest rates this year.
However, there are significant risks for the European economy. For example, there are political risks in Germany, where the respected Prime Minister Mario Draghi resigned last week. This is notable since Italy is the third biggest economy in the region.
Further, there is the risk that Russia will slash its natural gas supply to the region. If this happens, many European companies like Volkswagen and BMW will struggle to compete with their American and Asian peers.
Meanwhile, data published by the IFO Institute showed that Germany’s business confidence declined to the lowest level since 2020.