The EUR/USD pair gained ground for the second consecutive session following the Federal Reserve’s decision to maintain its benchmark rates at 5.5%. Fed Chair Jerome Powell’s remarks in the post-meeting press conference highlighted a dovish stance, which added further pressure on the Greenback. Powell pointed out that while inflation is showing signs of moderation, the persistent nature of price growth remains a significant concern that cannot be ignored by the Fed. This rhetoric hinted at potential future easing measures, leading investors to anticipate further policy changes in 2024.
Despite the Federal Open Market Committee (FOMC) forecasting stronger growth in 2024 and 2025 than initially expected, the Dot Plot of interest rate expectations showed an increase in long-term projections. The projected rate for the end of 2026 is now estimated to be around 3.1%, up from the previous projection of 2.9%. This shift in interest rate expectations reflects a more cautious approach by the Fed towards future monetary policy decisions.
On the European front, ECB President Christine Lagarde highlighted concerns regarding lower wage inflation, a critical factor in shaping future policy decisions. Vice-President Luis de Guindos also emphasized a cautious approach, advocating for patience in light of persistently high service inflation. Additionally, ECB policymaker Pablo Hernandez de Cos suggested the possibility of rate cuts in June, contingent upon incoming economic data.
The dovish remarks from both the Federal Reserve and the European Central Bank have propelled the EUR/USD pair higher, with the exchange rate nearing 1.0930 during Asian trading hours on Thursday. The market sentiment is now focused on future policy decisions from both central banks, as investors assess the potential impact on currency movements. The diverging stances of the Fed and the ECB regarding inflation and interest rates could lead to increased volatility in the EUR/USD pair in the coming days.
The EUR/USD pair’s recent gains can be attributed to dovish remarks from the Federal Reserve and concerns raised by the European Central Bank regarding inflation and future policy decisions. The contrasting views of the two central banks have created uncertainty in the market, driving investors to closely monitor upcoming developments. As the global economy continues to recover from the impact of the pandemic, central bank policies will play a crucial role in shaping currency movements and market sentiment.
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