EUR/USD is steady in Tuesday trade. Currently, the pair is trading at 1.1356, up 0.15% on the day. On Monday, the pair climbed to a 2-week high, as the positive momentum continues. On the fundamental calendar, German ZEW Economic Sentiment remained in negative territory, but improved to -3.6 points. This easily beat the estimate of -11.0 points. The eurozone event showed a similar trend, improving to -2.5 points. This beat the forecast and was the highest reading since May. For a second straight day, there are no major U.S. events. On Tuesday, Germany releases PPI and the Federal Reserve issues its monthly rate statement.
The Federal Reserve holds its monthly meeting on Wednesday, and is virtually certain to hold the benchmark rate at a range between 2.25 – 2.50 percent. However, investors will have more on their mind then than interest rate levels. The Fed has been sending a dovish message to the markets, and this stance is expected to continue in the March rate statement. The Fed’s balance sheet will also be under scrutiny, with the policymakers expected to announce when they will stop reducing the $4 billion balance sheet. The Fed has been reducing assets by $50 billion a month, but there has been criticism that this tightening is choking economic growth. The Fed will also publish its new dot plot, which is used to convey its interest rate outlook.
The ECB is also in a dovish mode, as the economic slowdown continues to weigh on the eurozone. Inflation climbed slightly in February to 1.5% year-on-year, but remains well below the ECB target of 2 percent. Low inflation means there is no pressure on the bank to raise rates in the near future. At the March policy meeting, policymakers delayed a rate hike to 2020 at the earliest, and this sent the euro to lower levels. The bank also cut its inflation forecast for 2019 to 1.2%, down from the previous forecast of 1.6%.
