Danske Research Team notes that EUR/USD is trading close to 1.17 ahead of the Federal Open Market Committee (FOMC) meeting, where th e Federal Reserve (Fed) is expected to keep rates unchanged and avoid firm forward guidance. They highlight rising euro area inflation expectations and tighter credit standards as important for upcoming European Central Bank (ECB) decisions, while German and Spanish inflation data are seen as key inputs for the Euro (EUR) outlook.

Fed pause and ECB inflation signals

"We will receive German and Spain flash inflation numbers today, the most important releases ahead of the euro area print tomorrow. Furthermore, the EU Commission's business confidence indicator is released today where focus is on the selling price expectations. The forward-looking nature of the survey is important for the ECB."

"Meanwhile, the ECB's quarterly bank lending survey showed banks tightening credit standards across all loan categories in Q1, driven by higher perceived risks. Further tightening is expected in Q2, which could help cool the euro area economy ahead of anticipated ECB rate hikes this summer."

"In the euro area, the ECB's Consumer Expectations Survey for March revealed sharply higher inflation expectations, with median 1Y CPI expectations jumping to 4.0% from 2.5%, and 3Y expectations rising to 3.0% from 2.5%. The monthly increase in 1Y expectations is nearly as large as the surge seen in March 2022, signalling a hawkish shift. Particularly medium-term expectations climbed, which prompted an upwards push on the EUR rates."

"EUR/USD continues to trade near 1.17 ahead of tonight's FOMC meeting where no change to the policy rate and no firm forward guidance is expected."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)