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Recent events in the US, such as the banking crisis, issue on debt ceiling, and the sharp shift in expectations regarding the Fed's interest rate, kept markets on edge over the past few months.
Previously, amid a historically high inflation rate in Europe, where the figure reached 10.6%, EUR/USD plummeted to all-time lows, as the European economy fell into a technical recession. Data showed a quarterly economic growth of 0.1% within the statistical margin of error.
But after the European Central Bank (ECB) began raising interest rates, inflation in the region adjusted to 7%. However, it remains above the target level of 2%, so the ECB may continue its cycle of interest rates, taking cues from the Federal Reserve.
This points to a potential rise in euro, but the current environment hampers the movement. The significant economic and social problems in Europe, compounded by the crisis in Ukraine, also caused a massive capital outflow from the region and prompted many large companies to relocate. In this case, the currency should remain weak compared to others. However, similar problems exist for other competitors.
On the bright side, Christine Lagarde's repeated statements that rates will continue to rise prevent euro from falling significantly. Recent events simply demonstrate that the main pressure comes from the decline in risk appetite and increased interest in safe-haven assets, with dollar being at the forefront.
Therefore, until the Fed meeting ends, euro will remain under pressure, primarily against dollar. Only an improved market sentiment, as well as a decision wherein the Fed leaves interest rates unchanged, will support a euro rally. However, even in such a scenario, any potential appreciation will be limited.
If today's consumer inflation data in the Eurozone unexpectedly exceeds expectations, demand for euro will rise.
Forecasts for today:
EUR/USD
The pair remains below 1.0700. The downward movement may continue if Friday's employment data in the US shows a much larger increase in new jobs than expected. In this case, the pair could hit 1.0600
EUR/GBP
The pair declined after a brief consolidation, driven by expectations of a rate hike from the Bank of England. A rise above 0.8565 and a rebound towards 0.8700 could occur if inflation data in the Eurozone does not show a decrease, which will reinforce expectations of further rate hikes by the ECB.
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