The EURUSD exchange rate was quiet on Tuesday as investors await an important interest rate decision on Wednesday.
EURUSD – Daily Chart
The price of EURUSD recently found resistance at the 1.095 level, which will be an upside target. But a strong dollar may want to head back toward 1.070.
Markets got excited about an imminent end to the high-interest rate period, but hopes have receded. Chair Jerome Powell and his fellow Fed officials are expected to remain cautious when they meet this week. They will keep their rate unchanged for a fifth straight meeting and signal a need for further evidence that inflation is returning sustainably to their 2% target.
The Fed’s cautious approach shows what’s unusual about this round of potential rate cuts. A former Fed economist, Vincent Reinhart, notes that the Fed typically cuts rates quickly as the economy deteriorates to avoid a recession.
But this time, the economy is still healthy, and rate cuts are only being discussed because inflation levels have fallen from 9.1% in June 2022.
“The Fed is driving events, not events driving the Fed,” Reinhart said. “That’s why this task is different from others.”
After their last meeting in January, the central bank’s officials said they needed “greater confidence” that inflation was slowing toward their 2% target. However, the government has issued two inflation reports showing that the price increase pace remains elevated.
At this meeting, the Fed’s policymakers will also update their quarterly economic projections, which are expected to repeat a December forecast for three rate cuts by the end of 2024. However, for the central bank’s overall estimates to be reduced to only two rate cuts for 2024, two of the 19 Fed officials would need to change their projections to one fewer rate cut. Some economists are predicting that inflation will remain high this year.
The Fed’s policy is not popular after almost two dozen progressive Democrats from the US House and Senate called on the Federal Reserve to cut interest rates at its meeting this week.
With an upcoming election this year, Joe Biden’s re-election campaign would benefit from an economic boost that lower interest rates would help.
