- EUR/USD falls after German and Eurozone PMI data show a contraction in the manufacturing sector.
- The move tempered gains made after the Fed's dovish stance weakened the US dollar.
- The Fed continues to expect three 0.25% interest rate cuts in 2024, the same as in December.
The EUR/USD pair fell to a daily low of 1.0887 on Thursday following the release of Eurozone manufacturing PMI data, which showed a larger-than-expected contraction in both Germany and the eurozone as a whole, despite the improvement of the components of the service sector.
The move pared gains made following the Federal Reserve's decision to keep interest rates at their current levels and maintain expectations that it will cut interest rates three times in 2024.
EUR/USD turns lower after weakening manufacturing PMI
The EUR/USD fell from a one-week high of 1.0942 to below 1.0900 after the release of euro zone manufacturing PMI data painted a bleak picture of growth in the region. Although the composite PMI rose to 49.9, beating estimates of 49.7 and the previous February reading of 49.2, an unexpected drop in the manufacturing sector marred the outlook.
He March HCOB Manufacturing PMI fell to 45.7, which represents a greater contraction than expected (below 50). Economists had estimated a more buoyant rise to 47.0 from 46.5 previously.
The euro zone HCOB services PMI rose to 51.1 in March, beating estimates of 50.5 from 50.2 previously, according to data from S&P Global.
For its part, European economic powerhouse Germany showed a similar trend, with the German HCOB Manufacturing PMI falling to 41.6, below estimates of 43.1 and 42.5 in February. However, there were also unexpected gains in both the services component and the composite figure.
According to FXStreet analyst Dhwani Mehta, the euro's decline following the data was due to a “deeper manufacturing contraction in both Germany and the EU.”
The Fed maintains the status quo
At its policy meeting on Wednesday, the Fed kept the federal funds rate unchanged at 5.25%-5.50%, as expected. In its accompanying forecast document, the Summary of Economic Projections (SEP), it continued to forecast a drop in rates to an average target of 4.6% in 2024, as it did in December.
This is equivalent to expecting about three rate cuts of 25 basis points (0.25%) this year, although some market participants had speculated that the number of cuts could be reduced to two due to stronger inflation than expected. provided.
However, the rate cut was smaller in 2025, as the Fed funds rate fell to a median of just 3.9%, instead of 3.6% in December's SEP.
The Fed revised its GDP forecasts substantially upward, to 2.1% for 2024, from 1.4% in December, which many consider indicative of a “soft landing.”
The central bank's preferred inflation gauge, the core personal consumption expenditure (PCE) price index, was revised upward to 2.6% by 2024, from 2.4% in December.
In his post-meeting press conference, Federal Reserve Chairman Jerome Powell sought to downplay the latest batch of inflation readings, saying that just two months of data were not enough to dissuade the Fed from its path.
The general interpretation was one of “moderation”, which caused the Dollar to leave the overbought zone. EUR/USD, which measures the purchasing power of one euro (EUR) in US dollars (USD), climbed back into familiar territory.
Technical analysis: EUR/USD returns to the 1.0900 area
The EUR/USD pair reversed its bullish trend around the 200-day SMA level at 1.0830 and surged after the Fed meeting. On Thursday, however, it trimmed gains following weak manufacturing data from the Eurozone.
It is now trading below 1.0900 and appears to be moving in a range, with no real trend one way or the other.
Euro vs. US Dollar: 4-hour chart
However, Wednesday's bearish reversal still shows momentum and if the price moves higher, it will likely find resistance at the March 13 highs at 1.0964. If it breaks above, the highs for the month of March 8 would be at 1.0981. If it breaks above, the outlook will turn bullish again.
Alternatively, the bullish move could run out and the price could also pull back to head towards the 50-day SMA at 1.0840, followed again by the 200-day SMA at 1.0830.
Frequently asked questions about the Fed
What does the Federal Reserve do and how does it affect the dollar?
The monetary policy of the United States is directed by the Federal Reserve (Fed). The Fed has two mandates: achieving price stability and promoting full employment. Your main tool to achieve these objectives is to adjust interest rates.
When prices rise too quickly and inflation exceeds the Federal Reserve's 2% target, it raises interest rates, raising borrowing costs throughout the economy. This translates into a strengthening of the US Dollar (USD), as it makes the United States a more attractive place for international investors to place their money.
When inflation falls below 2% or the unemployment rate is too high, the Federal Reserve can lower interest rates to encourage borrowing, which weighs on the greenback.
How often does the Federal Reserve hold monetary policy meetings?
The Federal Reserve (Fed) holds eight meetings a year, in which the Federal Open Market Committee (FOMC) evaluates the economic situation and makes monetary policy decisions.
The FOMC is made up of twelve Federal Reserve officials: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the eleven presidents of the regional Reserve banks, who serve for one year on a rotating basis.
What is Quantitative Easing (QE) and how does it affect the USD?
In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed's weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE usually weakens the US dollar.
What is Quantitative Tightening (QT) and how does it affect the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the capital of the maturing bonds it has in its portfolio to buy new bonds. It is usually positive for the value of the US Dollar.
Source: Fx Street

I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.