The euro has been consolidating near a 15-year low with the first two months of the year showing no major movements in the currency pair. While there are significant fundamental risks to the single currency in the form of the elections in Europe this year, the euro has been so far muted.
However, this is likely to change over the coming weeks especially as at least two major events will pass through, which could provide more clarity to EURUSD in the run-up to the first round of French elections in April.
Fed rate hike could add short-term noise to EURUSD
On March 15, the U.S. Federal Reserve will be meeting for the monthly monetary policy meeting. Short-term interest rates in the U.S. are all set to be hiked this month, a factor that looks to have been priced in already.
The 30-day Fed funds futures is evidence to this with the futures contracts already trading at 0.87%, breaching past the 0.75% threshold and confirming the move in the short-term interest rates.
The euro could at best see some knee-jerk reaction, but for the most part, further declines are unlikely to come as a direct result of this Wednesday’s rate hike news from the Fed.
In the short term, the focus will, of course, be on the future path of rate hikes. The expectations currently stand at July and December as the next FOMC meetings where rates could be hiked. The expectations for the year stand at the Fed funds rate near 1.25% – 1.50%.
However, a lot is left to how the U.S. economy will perform in the coming months, especially with fresh data from the first quarter of the year likely to weigh on Fed decisions later down the line.
Dutch elections could set the tone for the rest of Eurozone
On the same day, the Netherlands will be heading to polls. This event will offer short-term volatility to the markets, especially the EURUSD.
However, the impact from the outcome of the Dutch elections could be mixed. While a vote to the current incumbent party in the Netherlands could breathe some relief and potentially put pressure on Marine Le Pen’s campaign, nothing is set in stone.
