EUR/USD Flat Ahead of Upcoming Fed Meeting

Alan Penny

28 January 2020

3 min read

US and EU flags

  • Fed expected to reinforce that monetary policy will remain unchanged
  • Coronavirus drives investors to USD and EUR
  • USD flat on back of unexpectedly weak new home sales

Tuesday saw the EUR/USD exchange rate stay flat. The currency pair traded in the vicinity of $1.1016.

traders are waiting to see what the Federal Reserve will decide

Movement in the markets was limited as traders are waiting to see what the Federal Reserve will decide. The policy meeting will be held today and tomorrow.

Investors expect that the Fed will once again choose to leave the monetary policy as is. In fact, experts anticipate that this will be the case for the rest of the year.

As investors wait for the Fed’s decision, the US dollar didn’t see a lot of movement against the euro. However, it did strengthen to almost reach December highs.

USD strengthens on back of coronavirus fears

The Wuhan coronavirus outbreak continues to affect markets. Investors are still concerned, proven by the fact that many are retreating into safe-haven currencies. Currencies such as the US dollar, the euro, and the yen have climbed slightly as a result.

The Wuhan coronavirus, known as 2019-nCoV, can cause pneumonia. It spreads from person to person through fluids expelled while sneezing and coughing. Its incubation period ranges from one to 14 days.

The virus has now killed 106 people in China. The number of confirmed cases has also increased to 4,515 from 2,835. As a result, China extended the Lunar New Year holiday until February 2.

In Tangshan, an industrial city and the largest manufacturer of steel in China, authorities shut down all public transport. Wuhan continues to remain almost under quarantine, the goal being to prevent the virus from spreading.

According to Reuters, President Xi Jinping stated that the virus was a “devil” that could not be allowed to hide. He added,

“China will strengthen international cooperation and welcomes the WHO participation in virus prevention … China is confident of winning the battle against the virus.”

Markets are still worried, though, especially seeing that numerous countries, from Japan to France, are evacuating their citizens. Hong Kong is planning to shut down any ferry and rail connections with mainland China. Experts say that determining the fatality rate of the virus accurately will be difficult due to the fact that many mild cases might not be reported at all.

According to Citi economists, the issue isn’t “the fatality rate, but how infections the Wuhan virus is. The economic impact will depend on how successfully this outbreak is contained.”

Weak new US home sales figures keep dollar flat

December’s new US home sales were published on Monday afternoon. The data showed an unexpected decline of 0.4%, making December the third month in a row of drops.

Experts attribute the decline to a lack of affordable housing. Home sales in the south declined to a one-year low.

However, the US dollar remained flat. This is likely because previously owned home sales rose to almost the highest level in two years. December was the seventh month in a row of increases in sales of previously owned homes.

What’s to come for EUR/USD?

The US will be releasing their durable goods orders this afternoon. If the data is positive, it could lead to the dollar gaining some ground against the euro.

On Wednesday, GfK will publish the German consumers’ confidence index. If it is lower than expected, the euro will likely suffer, leading to a slide for the EUR/USD pair.

Written By
Alan Penny

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