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EUR/USD Exchange Rate Forecast to Trend Lower Today ahead of FOMC Rate Decision

Euro Currency Forecast

As markets get ready for what is expected to be the first Fed interest rate hike in nearly a decade the Euro to US Dollar (EUR/USD) exchange rate has been on a slight downtrend today.

Strengthening Eurozone Economic Sentiment Surveys Shored up Euro (EUR)

Demand for the Euro (EUR) continued to rise on Tuesday after the December ZEW Economic Sentiment Surveys showed that confidence within both Germany and the wider Eurozone had strengthened on the month. Offering another display of the resilience of the currency union’s economy, in spite of negative global headwinds and slowdown concerns, this bolstered the single currency across the board. While European Commission President Jean-Claude Juncker made dovish comments yesterday regarding the Eurozone’s over-dependence on loose monetary policy this only pushed the buoyant Euro down temporarily.

As the US Consumer Price Index for November printed strongly, rising from 0.2% to 0.5% on the year, the odds of an imminent Federal Open Market Committee (FOMC) interest rate hike were kept high. This more positive inflationary outlook, as well as a sustained recovery that pushed oil prices away from multi-year lows, helped to shore up the US Dollar (USD) overnight.

US Dollar (USD) Trends Higher ahead of FOMC Interest Rate Decision Today

In spite of markets having already largely priced in the impact of an incremental interest rate increase the ‘Buck’ has been back on a bullish run today. With traders continuing to positon ahead of the pivotal Fed announcement speculation has equally turned to the tone that Chair Janet Yellen will take with regards to the pacing of further interest rate moves in the coming year. Pundits seem to increasingly favour the probability of a so-called dovish hike, which will see Yellen emphasise the necessity of a more gradual path on monetary tightening.

Although the Eurozone’s finalised CPI reading for November was revised up from 0.1% to 0.2% this failed to particularly bolster the single currency, which remains relatively bearish in the face of a significant policy divergence between the Fed and the European Central Bank (ECB).

EUR/USD Exchange Rate Forecast: Fed Decision to Dominate Focus for Euro and US Dollar

Volatility should be expected for the Euro to US Dollar (EUR/USD) exchange rate in the wake of tonight’s FOMC rate decision. While pundits are already braced for higher interest rates the uncertainty regarding the Fed’s plans for additional hikes in 2016 could see the US Dollar dented. If an over-reaction occurs within global stock markets and commodity values the Euro could stand to make some gains as a more appealing safe-haven asset.

Tomorrow’s German IFO Business Sentiment Surveys could shore up the common currency, particularly as forecasts anticipate an improved Expectations Index, although investors are likely to remain generally preoccupied with the aftermath of the final Fed meeting of 2015.

Current EUR, USD Exchange Rates

At time of writing, the Euro to US Dollar (EUR/USD) exchange rate was on a downtrend in the range of 1.0927, while the US Dollar to Euro (USD/EUR) pairing was making limited gains around 0.9149.