- EUR/USD rises despite Fed Minutes reflecting concerns about premature interest rate cuts.
- In the Eurozone, German PMI data for February suggests improving activity in the services sector, but manufacturing lags behind.
- Dollar loses ground despite expectations of prolonged rate hikes.
- US PMI data, weekly jobless claims and Existing Home Sales data will be released on Thursday.
The EUR/USD pair extends its winning streak for the seventh consecutive day on Thursday, while the US Dollar (USD) weakens despite market expectations of a prolonged interest rate increase by the Federal Reserve (Fed ). The Federal Open Market Committee (FOMC) Minutes reflected policymakers' concerns about early interest rate cuts, suggesting that policy easing will not begin at the next monetary meetings.
In Europe, Eurozone and German Purchasing Managers' Index (PMI) data were mixed in February. Preliminary services PMIs for the Eurozone and Germany rose above expected figures, while manufacturing PMIs were weaker than the market expected. Traders' attention shifts to the United States to watch S&P Global PMI numbers, weekly initial jobless claims and existing home sales later in the North American session.
The Dollar Index (DXY) retreats to 103.70, with the 2-year and 10-year US bond yields at 4.65% and 4.31%, respectively, at the time of writing. The minutes of the FOMC's January meeting underscored the need for additional evidence of disinflation to mitigate concerns about upside risks to inflation. This cautious stance follows strong January Consumer Price Index (CPI) and Producer Price Index (PPI) numbers, along with strong February employment data.
Daily Market Summary: EUR/USD advances amid mixed Eurozone, German PMI data
- The German services PMI improved to 48.2 in February, beating market expectations of 48.0 and 47.7 previously.
- The German Manufacturing PMI fell to 42.3, versus an expected rise to 46.1 from the previous reading of 45.5.
- The German Composite PMI fell to 46.1 from the previous reading of 47.0.
- The Eurozone services PMI stood at 50 points in February, compared to 48.8 and 48.4 previously.
- The Eurozone manufacturing PMI fell to 46.1 points, compared to the expected increase from 46.6 to 47.0 points.
- The Eurozone Composite PMI improved to 48.9 versus the previous forecast of 48.5 and 47.9.
- Economists at the Deutsche Bundesbank report a general decline in the inflation rate in the coming months. The advance of Easter this year compared to last year is expected to influence the prices of organized trips, with the consequent impact on the inflation rate.
- The monthly report of the German Buba predicts that inflation of food and other goods will continue to decline in the coming months. However, price pressures in the services sector are expected to decline at a slower pace, mainly due to sustained strength in wage growth.
- According to the CME's FedWatch tool, the probability of a Federal Reserve rate cut has decreased markedly to 4.5% for March and 29.8% for May. The tool indicates a slight decrease in the probability of a cut in June, with a probability of 52.2%, down from 53.3% previously. The probability of a rate cut has increased for July, moving to 37.4% from 33.4% previously.
- S&P's analysis of the FOMC Minutes suggests that inflation is expected to continue cooling in the coming months, despite ongoing uneven disinflationary trends. They maintain their outlook for monetary policy in 2024, without expecting changes. S&P forecasts that the Federal Reserve will likely reduce its interest rate by 25 basis points at its June meeting, with further cuts totaling 75 basis points by the end of the year.
- The president of the Federal Reserve Bank of Richmond, Thomas Barkin, stated that the United States still has “a way to go” to achieve a soft landing, Reuters reports. Barkin highlighted the overall positive trajectory of US data regarding inflation and employment. However, he noted that recent PPI and CPI numbers have been less favorable, indicating a reliance on goods disinflation. He suggested that the US is nearing the end of its inflation challenge, with the pressing issue being the duration to resolution.
- The Federal Reserve's latest dot chart for this year suggests an anticipation of 75 basis points in rate cuts, while the Fed funds futures market is pricing in about 89 basis points in cuts. Additionally, ANZ anticipates that the Federal Reserve (Fed) will begin rate cuts from July 2024.
Technical Analysis: EUR/USD hovers around the main level of 1.0850
EUR/USD is trading near 1.0860 on Thursday, positioned above immediate support at 1.0850 followed by a 23.6% Fibonacci retracement level at 1.0842 and the nine-four-hour EMA at 1.0829. A break below the latter could lead the EUR/USD pair to navigate towards the support zone around the 38.2% Fibonacci retracement level at 1.0814 and the psychological level of 1.0800.
The 14-hour Relative Strength Index (RSI) is above the 50 level, suggesting bullish momentum. Furthermore, the moving average convergence divergence (MACD) is above the center line and signal line, confirming the bullish trend.
To the upside, the EUR/USD tests the February high at 1.0897, which is aligned with the psychological level of 1.0900. If it breaks this psychological barrier, the pair could explore the zone around the 1.0950 level.
EUR/USD: 4-hour chart
Euro price this week
Below is the percentage change of the euro (EUR) against major currencies this week. The euro was the strongest currency against the Japanese yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.63% | -0.52% | -0.14% | -0.66% | 0.06% | -1.15% | -0.32% | |
| EUR | 0.62% | 0.13% | 0.48% | -0.03% | 0.68% | -0.51% | 0.30% | |
| GBP | 0.51% | -0.11% | 0.36% | -0.14% | 0.57% | -0.62% | 0.19% | |
| CAD | 0.15% | -0.48% | -0.36% | -0.51% | 0.21% | -0.99% | -0.17% | |
| AUD | 0.66% | 0.04% | 0.15% | 0.52% | 0.71% | -0.47% | 0.34% | |
| JPY | -0.05% | -0.69% | -0.55% | -0.21% | -0.72% | -1.21% | -0.38% | |
| NZD | 1.12% | 0.50% | 0.62% | 0.98% | 0.47% | 1.17% | 0.80% | |
| CHF | 0.35% | -0.30% | -0.19% | 0.18% | -0.32% | 0.37% | -0.81% |
The heat map shows the percentage changes of the major currencies against each other. The base currency is chosen in the left column, while the quote currency is chosen in the top row. For example, if you choose the euro in the left column and scroll down the horizontal line to the Japanese yen, the percentage change that appears in the box will represent EUR (base)/JPY (quote).
US Dollar FAQ
What is the US Dollar?
The United States Dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a significant number of other countries where it is in circulation alongside local banknotes. According to 2022 data, it is the most traded currency in the world, with more than 88% of all global currency exchange operations, equivalent to an average of $6.6 trillion in daily transactions.
After World War II, the USD took over from the pound sterling as the world's reserve currency.
How do the decisions of the Federal Reserve affect the Dollar?
The single most important factor influencing the value of the US Dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. Your main tool to achieve these two objectives is to adjust interest rates.
When prices rise too quickly and inflation exceeds the 2% target set by the Fed, the Fed raises rates, which favors the price of the dollar. When Inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the Dollar.
What is Quantitative Easing and how does it influence the Dollar?
In extreme situations, the Federal Reserve can also print more dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged financial system. This is an unconventional policy measure used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It is a last resort when a simple lowering of interest rates is unlikely to achieve the necessary result. It was the Fed's weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE usually leads to a weakening of the US Dollar.
What is quantitative tightening and how does it influence the US dollar?
Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing portfolio securities in new purchases. It is usually positive for 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.
