- Euro (EUR) has been broadly supported since ECB meeting
- German ZEW investor confidence unexpectedly rose in September
- US Dollar (USD) trades carefully with eyes on the Fed
- No change in policy is expected
The Euro US Dollar (EUR/USD) exchange rate is treading water in early trade on Wednesday, after slipping in the previous session. The pair dropped -0.2% on Tuesday, settling at US$1.1845, snapping 4 sessions of gains.
The Euro has been broadly supported since the European Central Bank meeting last week, which saw the central bank up its economic outlook and indicate that it was unfazed by the appreciation of the Euro in recent months.
Data from the region continues to show a recovery, although the pace of the recovery is slowing.
Yesterday, the release of upbeat German ZEW data pointed to the continued recovery in Germany, the Eurozone’s largest economy. The figures showed that investor sentiment in Germany unexpectedly increased in September despite headwinds from deadlocked Brexit talks and rising coronavirus infections.
Today there is no high impacting data to be released, mid-tier trade data could grasp some attention.
The US Dollar is trading cautiously lower versus its major peers ahead of the Federal Reserve’s monetary policy announcement today. The US central bank is not expected to change monetary policy but they could provide more clarity on the shift to average inflation targeting (AIT). This was a shift in policy framework announced by Federal Reserve Chair Jerome Powell at the Jackson Hole symposium last month.
The Fed will also release updated economic projections, which will include the dot plot. The dot plot maps out the Fed’s expectations for rates. The dot plot could be lowered to reflect the fact that the Fed will be allowing inflation to overshoot the 2% inflation target to make up from periods under the 2% level. This would support the idea of lower rates for longer and could drag on demand for the greenback.
Prior to the Fed’s announcement US retail sales will be released. Analysts are forecasting a 1.1% month on month in August, just slightly down from 1.2% the previous month.