The US dollar experienced a slight uptick in early European trade on Tuesday, but remained unable to move much higher than recent five-week lows as the Federal Reserve prepares to begin its latest policy-setting meeting. This follows a period of volatility that saw the dollar fall to its lowest point in nearly six months in late February.
The EUR/USD pair saw a slight increase to 1.0716, with investors awaiting the release of the German ZEW survey of economic sentiment for March. Analysts expect the survey to show a drop to 17.1 from 28.1, with banking unrest among the factors weighing on sentiment.
The upcoming Fed meeting is expected to be closely watched, with investors looking for indications on the future path of interest rates and any changes to the bank’s bond-buying program. The Fed has previously indicated that it plans to keep interest rates near zero until at least 2023, but recent inflation concerns have led some to speculate that the bank may need to adjust its plans.
In addition to the Fed meeting, market participants will also be keeping an eye on upcoming economic data releases, including US retail sales and producer prices for February, as well as the latest unemployment figures.
Despite the recent volatility and uncertainty, some analysts remain optimistic about the future of the US dollar. The recent passage of the $1.9 trillion stimulus package, coupled with a strong economic recovery and high vaccination rates, could provide a boost to the currency in the coming months.
However, others caution that the risks of inflation and potential policy changes could limit the dollar’s gains, particularly if the Fed signals a willingness to let inflation run higher than its target rate for an extended period of time.
In conclusion, the US dollar has struggled to gain momentum ahead of the latest Federal Reserve policy-setting meeting, with investors awaiting indications on the future of interest rates and the bank’s bond-buying program. While the future remains uncertain, the upcoming economic data releases and potential policy changes could have a significant impact on the direction of the currency in the coming months.