A very uncertain situation on the data front which makes the future of the euro-dollar exchange rate very difficult to predict.
An important member of the FED board does not rule out a rate increase
Michelle Bowman, governor of the US Federal Reserve, reiterated her view that inflation will continue to decline while keeping the policy rate constant. However, she expressed concern about the lack of progress in inflation this year and said she was ready to raise interest rates if improvements stop or reverse.
In his speech to the Pennsylvania Bankers Association in Nashville, Tennessee, Bowman pointed out that despite significant progress in slowing inflation last year, no further improvements have been seen this year. He said that although current monetary policy appears to be at a restrictive level, he is willing to raise the target range of the federal funds rate at a future meeting if incoming data indicates a halt or reversal of progress on the inflation.
Bowman had already given a similar assessment earlier in the month, and in his remarks on Friday he did not mention recent data on consumer price inflation, which made some analysts slightly more optimistic about the possibility of reaching the target of 2 % of Fed.
In conclusion, Bowman stated that he will maintain a cautious approach when considering future changes in monetary policy.
The data that moved the prices of the euro and the dollar
The dollar retreated against major currencies on Friday amid speculation about the Federal Reserve’s next rate cuts, fueled by signs of cooling inflation and a weakening U.S. economy. April consumer prices rose less than expected, which brought optimism to stock markets, but several Fed officials expressed caution about the timing of rate cuts, limiting the dollar’s decline.
The dollar index slipped 0.04% to 104.44 after an earlier rise of 0.3%. One analyst noted that the market has become cautious about impending rate cuts, highlighting a slowing U.S. economy and an improving outlook elsewhere. Futures markets now expect fewer than 45 basis points of cuts by December, down from nearly 50 on Wednesday, and a 21 basis point cut in September, up from nearly 25 previously.
U.S. inflation accelerated in the first quarter, but the recent slowdown has eased some concerns, even as policymakers stressed that reaching the Fed’s 2% target will take longer than expected. A 0.9% increase in import prices fueled fears of further inflationary pressures.
The euro rose 0.06% to $1.0872, supported by eurozone policymakers’ confidence that inflation will return to target next year. The German economy grew more than expected, and investor morale is at a two-year high. However, disappointing Chinese economic data tempered market optimism.
The indications of the graphic analysis on the euro-dollar exchange rate
With the weekly close above 1.0865, a bullish reversal could have materialized which could develop according to the scenario indicated in the figure by the dotted line. Bears, however, could find strength from a weekly close below 1.0628. In this decline, the decline could develop according to the scenario indicated in the figure by the solid line.
