- The EUR/USD moves down around 1,0935 in the Asian session on Wednesday.
- The Fed is expected to maintain its interest rate without changes and will update its rates projections on Wednesday.
- Germany’s Parliament approved plans for a massive increase in spending on Tuesday.
The EUR/USD torque weakens up to about 1,0935 during Wednesday’s Asian negotiation hours, pressed by a modest recovery of the US dollar (USD). Operators prefer to stay out before the decision on Federal Reserve Interest (FED) rates on Wednesday.
The most strong US economic data than expected on Tuesday have provided some support to the dollar. The data published by the FED showed that industrial production in the United States increased 0.7% monthly in February, compared to 0.3% in January (reviewed from 0.5%). This reading exceeded the market consensus of 0.2%.
The markets expect that the US Central Bank maintain stable rates at its March meeting on Wednesday in the midst of persistent concerns about inflation and economic uncertainty. The press conference and the Summary of Economic Projections (SEP), or ‘Point Diagram’, will be observed closely as they could offer more clues about the economic perspective and the path of interest rates in the US.
On the other side of the ocean, Germany’s Parliament approved plans for a massive increase in spending on Tuesday. This positive development could support the shared currency, since the approval of the plans in the Bundestag on Tuesday would provide the chancellor waiting for an unexpected income of hundreds of billions of euros to boost the investment after two years of contraction in the largest economy in Europe.
Fed Faqs
The monetary policy of the United States is directed by the Federal Reserve (FED). The Fed has two mandates: to achieve prices stability and promote full employment. Its main tool to achieve these objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the objective of 2% set by the Federal Reserve, it rises interest rates, increasing the costs of loans throughout the economy. This translates into a strengthening of the US dollar (USD), since 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 foster indebtedness, which weighs on the green ticket.
The Federal Reserve (FED) celebrates eight meetings per 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 officials of the Federal Reserve: the seven members of the Council of Governors, the president of the Bank of the Federal Reserve of New York and four of the eleven presidents of the regional banks of the Reserve, who exercise their positions for a year in a rotary form.
In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). The QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non -standard policy measure used during crises or when inflation is extremely low. It was the weapon chosen by the Fed during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy high quality bonds of financial institutions. The one usually weakens the US dollar.
The quantitative hardening (QT) is the inverse process to the QE, for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the bonds that it has in portfolio that they expire, 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.
