EURUSD has experienced a descent to a nadir unseen in the past two months, courtesy of the Federal Reserve’s resolute stance against a rate cut in March.
The euro (EUR) witnessed a decrement of 0.23% in the preceding day, attaining its lowest ebb since the 13th of December. This downturn was triggered by the assertive remarks from Jerome Powell, the Chair of the Federal Reserve (Fed).
Potential Implications for Traders
EURUSD is on a trajectory to incur a 2.2% decline in the ongoing month, marking its most lackluster monthly performance since September. The vigor of the U.S. dollar surged on Wednesday, fueled by the indications from Jerome Powell that a rate cut in March is not within the realm of possibilities. The Fed adopted a more neutral stance on interest rates, contrary to the expectations of many market participants. In a press briefing, Powell articulated the necessity for additional data to ascertain that the decelerating inflation trend aligns with the economic trajectory before committing to rate reductions with confidence. He remarked, ‘We possess confidence, yet we aspire to attain a higher level of confidence.’
In essence, Powell outrightly dismissed the prospect of a rate cut in March. Nonetheless, the U.S. Dollar Index (DXY) failed to reach new peaks. The probability of a rate reduction in March now hovers at less than 36%, a significant drop from the 73% figure observed a month ago. Concurrently, data from Wednesday unveiled a reduction in inflation in Germany to 3.1% in January, attributed to a downturn in energy prices. A combination of lackluster economic growth and diminished inflation figures across the eurozone might elevate anticipations of imminent monetary policy easing from the European Central Bank (ECB), potentially precipitating a decline in EURUSD.
During the early stages of the European trading session, EURUSD exhibited a marginal descent. Today, traders should closely monitor the eurozone Consumer Price Index (CPI) report scheduled for 10:00 a.m. UTC. If the data aligns with the precedent set by yesterday’s German CPI report, indicating a figure lower than anticipated, EURUSD may undergo a pronounced downturn—potentially converging towards 1.07500. Conversely, if the numbers surpass expectations, it might provide marginal support to the bullish sentiment surrounding the EUR.