Euro drops awaiting Fed rate decision

Published on 31.01.2024 12:11

The Euro hit stiff resistance during the Asian session on Wednesday falling towards the 1.08 mark and well within the striking distance of its lowest level since December 13 touched earlier this week as market participants gear up for the Latest Interest rate decision by the US Federal Reserve.

In a sign that the Fed may be in no hurry to cut rates, the JOLTS report published on Tuesday showed that US job openings unexpectedly increased to 9.02 million in December and suggested that the labor market is too strong for the Federal Reserve (Fed) to start cutting interest rates in the first quarter. This, along with geopolitical risks stemming from conflicts in the Middle East and China's economic woes, assists the safe-haven US Dollar (USD) to stand tall near its monthly peak and exerts some pressure on the EUR/USD pair.

The Fed is widely expected to hold interest rates steady at the end of its two-day policy meeting on today, with some investors seeing a possibility that it could ramp up its dovish tone after it was perceived to have pivoted from a tightening policy outlook at its meeting last month.

The Fed’s interest rate decision is at 2 p.m. ET and will be followed by a news conference by Fed Chief Jerome Powell, where traders will parse his words for any indication on when the central bank may start to move.

Seventeen of 19 Fed officials projected at the Dec. 12-13 meeting that the policy rate would be lower by the end of this year, compared to where it was last month. The Fed's median projection showed the rate falling three-quarters of a percentage point from the current 5.25%-5.50% range.

“There is little reason to expect a major slowdown in the economy so the Fed will likely not risk the gains in inflation it has made by easing prematurely,” wrote Joel Naroff, president of Naroff Economics.

Other news that is likely to drive the EUR/USD currency pair will be the release of consumer price Index figures from Germany which are expected to hit the market at 3.2 percent, well down on last months figure of 3.8 percent and if analysts are correct, the release may exert downward pressure on the Euro.