EUR/USD Forecast: Euro Rises Ahead of Fed Rate Hike and ECB Policy Meeting

EUR/USD Highlights

• Federal Reserve expected to announce 25 bps rate hike
• European Central Bank likely to increase rates by 25 or 50 bps
• Investors on Edge as Fed and ECB Meetings Convene

EUR/USD Overview

The Euro is moving higher against the US Dollar on Wednesday as traders brace for the Federal Reserve’s widely expected rate hike at 18:00 GMT and Thursday’s regular policy meeting by the European Central Bank.

At 11:50 GMT, the EUR/USD is trading 1.1037, up 0.0034 or +0.31%. On Tuesday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $101.59 or +0.35 or +0.35%.

Fed to Lift Rates 25 bp, Uncertainty Over Size of ECB Rate Hike

On Wednesday, the Federal Reserve will release its latest policy decisions, including a determination on interest rates. Many investors anticipate a 25 basis point increase. We expect the guidance issued and the subsequent press conference, alongside the rate decision, to provide insight into the policy outlook. Investors hope to glean information about the possibility of further rate hikes or a pause in increases, as well as the potential duration of elevated rates before they may be lowered.

Concerns about the economic impact of heightened rates have become more widespread in recent weeks. Although officials have suggested that rate hikes could be halted, they have also acknowledged that inflation remains too high to consider rate cuts.

Meanwhile, money markets indicate that there is an approximately 85% likelihood that the ECB will raise rates by 25 bps, with a 15% chance of a 50 bps increase.

Treasury Yields Dip

Investors eagerly awaited the latest interest rate decision and policy guidance from the Federal Reserve, causing U.S. Treasury yields to decline on Wednesday. As of 6:02 a.m. ET, the yield on the 10-year Treasury had dropped more than 4 basis points to 3.394%, while the 2-year Treasury was trading at 3.941% after falling by approximately 4 basis points.

ADP Jobs Report on Tap

In addition to the Federal Reserve’s policy announcement, Wednesday also brings the release of ADP’s latest private payrolls report. According to economists surveyed by Dow Jones, businesses are expected to have added 133,000 jobs in April, fewer than the 145,000 added in March. Furthermore, the ISM non-manufacturing purchasing managers’ index report for April, which tracks business activity in the services sector, is anticipated.

Technical Analysis

The EUR/USD is hovering around the daily pivot of 1.0965, suggesting a weak short-term trend despite a decisively upward long-term trend. A successful test of 1.0965 may indicate the start of a near-term rally towards resistance at 1.1141 if buyers re-emerge.

However, if the pivot is broken, a potential acceleration to the downside could occur with the next likely support target at 1.0834.