Anna 
EUR/USD has descended to a new range in the 1.0800s after last week’s US inflation data surpassed expectations, boosting the likelihood of the Federal Reserve (Fed) maintaining higher interest rates for an extended period. The prospect of higher interest rates tends to attract more foreign capital inflows, favoring the US Dollar (USD) but weighing negatively on EUR/USD, which gauges one Euro’s (EUR) purchasing power in USD terms.
Traders of EUR/USD brace for heightened volatility as the Fed concludes its March meeting on Wednesday, announcing its policy decision alongside the publication of its Summary of Economic Projections (SEP). Although the possibility of a rate cut by the Fed was on the table a few weeks ago, it is now deemed highly unlikely.
Mark Cranfield, an analyst at Bloomberg MLIV, notes that the prevailing sentiment is one of patience from the Fed. This sentiment is reflected in the CME FedWatch Tool, which currently calculates a 58% chance of one or more 0.25% cuts by June and 76.5% by July, down from 80% for June earlier in the month.
In the previous SEP, the Fed anticipated at least three 0.25% interest rate cuts in 2024, as indicated in their “dot plot.” However, there’s now speculation that this projection may be scaled back to only two cuts after the March meeting, a move Cranfield views as potentially aggressive and likely to further weaken EUR/USD.
Contrarily, Cranfield suggests that maintaining the status quo of three dot-plot cuts would be a bullish signal for EUR/USD. Meanwhile, a report by Bloomberg suggests that July is emerging as a more probable month for the Fed to begin easing, shifting market expectations away from June, which could have negative implications for EUR/USD, assuming all other factors remain constant.
Monday sees little major data releases for the Eurozone, with February Consumer Price Index data expected to remain in line with the preliminary results of 2.6% for headline and 3.1% for Core.
