EUR/USD Exercises Caution Ahead of Fed and ECB Decisions.
The major currency pair is preparing for a week filled with significant events. The current EUR/USD exchange rate stands at 1.1120.
The currency market awaits a period of heightened emotions as the US Federal Reserve System's meeting concludes on Wednesday, followed by the European Central Bank's meeting on Thursday. Both regulators are expected to announce a 25-basis-point increase in the interest rate. However, the difference lies in their accompanying comments and future policy outlook.
The Fed is expected to raise the rate to 5.5% per annum and is likely to halt further increases at this point, based on average forecasts. This raises the main market intrigue: how the Fed will communicate about the future of monetary policy. A rate of 5.5% is considered restrictive for the economy and the financial system. Anything higher could have negative consequences for the nation's economic system and lead to a rapid recession.
The key question is how the Fed views inflation and the sustainability of the economy. The Fed's assessment of inflation and the economy will be critical in shaping its future policy decisions. Signals indicating a potential pause in rate hikes will likely result in a weaker dollar.
On the other hand, the ECB is very likely to maintain its tough approach, despite recent positive inflation signals. Prices seem to have been brought under control, but it remains uncertain whether this is a coincidental occurrence or a developing trend. Any indications of further rate hikes will support the value of the EUR.
In summary, the focus is on global regulators as they take on the role of the primary market influencers at this time.