EUR/USD: the Fed sails in sight

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The euro continued its consolidation against the dollar, with the support of the vote by the Bundestag, the lower chamber of the German parliament, of the reform of the so -called “debt brake”. This reform constitutes a prerequisite for the proper implementation of the mega investment plan of several hundred billions of euros in defense and infrastructure.

The ball is now in the Bundesrat camp, the upper room, which will have to rule on this same level on Friday. Deutsche Bank expects this vote to find a positive outcome. However, the great unknown remains the future decision of the German Constitutional Court, points out the German bank, even if there again it judges that the institution should approve the reform.

In perspective therefore, massive investment expenditure in infrastructure, for companies from the entire euro area, and in defense.

“The European Defense sector is part of a new era of investment and strategic autonomy. Faced with the increase in geopolitical risks and uncertainty about the support of the United States, European nations take proactive measures to build a more robust and self-sufficient military ecosystem. Despite financing difficulties, the increase in budgets, technological investments and commitments to NATO renders this Aneeka Gupta, Director, Macroeconomic Research, Wisdomtree.

The Fed was completing a meeting of its monetary policy committee yesterday. As expected, the monetary institution has left its rates unchanged, while playing the balancingists for its future intentions, due – and it is very legitimate – a lack of visibility. J Powell spoke of “unusually high uncertainty”. Economic anticipations, updated each quarter, have been lowered. + 1.7% GDP growth against 2.1%, 2.7% inflation, compared to 2.5% in the last projections and 4.4% unemployment at the end of 2025, against 4.4% of the active population.

“This combination of higher inflation and lower inflation forecasts probably reflects an adjustment of hypotheses concerning government’s commercial policy and the expected impact of higher customs duties,” decrypts Tiffany Wilding, economist at Pimco.

“”Fed officials face the challenge of balanced the increase in inflation and the risks of recession that seem to increase in tandem. In the short term, Powell reported that officials are comfortable with the maintenance of the rates and proceed with caution concerning the rates. However, we believe that unemployment will be the ultimate referee, and we always expect the Fed to aggressively reduce its rates in the event that the unemployment rate would begin to increase. “

The lack of visibility is due in particular to the absence of a precedent in such aggressiveness on the commercial front, and to the unpredictable character of the chief of the White House.

“The Fed therefore sails a little in sight, without being able to anticipate in the long term. Which is likely to irritate Donald Trump. Last night, he again urged the institution to lower his rates while, according to him,” American customs duties are starting to make himself (easily!) A way in the economy “. In the past, the American president has criticized Jerome Powell (whose mandate runs to 2026) Decreases in the rates which it deems too slow.

In the statistical chapter Wednesday, concerning the consumer price indices in the euro zone published at the end of the morning, no surprise to report, prices increased by 2.6% in annual rate in final data for February, excluding volatile elements (food, alcohol, tobacco, energy).

Let us recall, the day before, the strong progression of the Zew index in March. “This improvement in the economic climate is probably explained by positive signals concerning the future German fiscal policy, such as the financial agreement of several billion euros for the federal budget. The prospects have notably improved for manufacturers of metals and steel, as well as for the mechanical construction sector. Finally, the sixth consecutive decrease in interest rates by the ECB is reflected in favorable funding conditions and companies, “said the president of the Zew Achim Wambach.

At the macroeconomic agenda this Thursday, to follow in priority the weekly registrations for unemployment benefits and the Philly Fed of the health of industrial activity in the United States at 1:30 p.m.

At midday on the foreign exchange market, the euro was treated against $ 1,0840 approximately.

BNS (Swiss National Bank) lowered its main key rate on Thursday at 0.25%.

Key graphics elements

The crossing in significant volatility of $ 1,0608 changes the situation on the configuration of the currency pair, which has just validated a resumption of support on a long mobile average, at 50 days (in orange), which begins a resource figure. The scenario of a fast melting towards the perfect parity (€ 1 = $ 1) is invalidated.

Medium term

In view of the key graphic factors that we have mentioned, our opinion is neutral in the medium term on Euro dollar parity (Eurusd).

We will keep this neutral opinion as long as the EURO Dollar parity prices (EURUSD) are positioned between the support at 1,0758 USD and the resistance to USD 1,1012.

Daily data graphics