The euro tanked to a fresh two month low of USS$1.9098 versus the US dollar on Tuesday, before rebounding and closing the session back above US$1.1010, flat on the day. The euro US dollar exchange rate is edging lower in early trade on Wednesday, back towards US$1.10, as investors look ahead to the Federal Reserve monetary policy announcement later today.
Demand for the euro picked up late in the US session as risk sentiment across the financial markets briefly improved surrounding coronavirus. Today, however the mood surrounding the deadly virus has taken a turn for the worse. As the number of deaths continue to rise and the number of people infected is now greater than those who fell ill with SARS, investors remain concerned over the economic impact of the virus.
The euro is slipping lower despite stronger than forecast German consumer confidence. Investors have shrugged off news that German households are more upbeat than in November. Confident consumers usually translates into higher spending, which is good news for the economy. The data also calms fears that the manufacturing slump is spilling into the service sector,
Demand for the safe haven US dollar had eased by the end of trade on Wednesday owing to improved risk sentiment. The dollar pared gains despite strong US durable goods orders, which jumped 2.4% month on month in December and despite US consumer confidence increasing by 3.4 points to 131.6.
Attention will now turn towards the Federal Reserve monetary policy meeting later today. The Fed are not expected to alter monetary policy. Policy makers deem current policy appropriate amid balanced risks and following three insurance rate cuts across the summer.
Whilst there will not be new economic projections at this meeting, there will be a a press conference with Federal Reserve chair Jerome Powell. Traders will be keen to see how the Fed is viewing developments between US and China and the phase 1 trade deal.
According to the CME Fedwatch, investors are pricing in a 605 probability of the Fed staying pat on rates, a 27% chance of a rate cut and a 13% chance of a rate hike in the meeting.
| What do these figures mean? |
| When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written: 1 EUR = 1.12829 USD Here, €1 is equivalent to approximately $1.13. This specifically measures the euro’s worth against the dollar. If the U.S. dollar amount increases in this pairing, it’s positive for the euro. Or, if you were looking at it the other way around: 1 USD = 0.88789 EUR In this example, $1 is equivalent to approximately €0.89. This measures the U.S. dollar’s worth versus the euro. If the euro number gets larger, it’s good news for the dollar. |
