The Euro US Dollar (EUR USD) exchange rate continued to decline on Wednesday as markets predict tomorrows European Central Bank (ECB) policy meeting will leave interest rates untouched.
Economists forecast that the ECB will vote to keep interest rates at 0% as it sticks to its ultra-loose monetary policy, despite an uptick in Eurozone economy.
ECB President, Mario Draghi is expected to tell investors that even though inflation is now within the bank’s target range, global political uncertainty makes it unwise for the bank to reign in its quantitative easing programme at this time.
However some analysts predict that the Bank may alter its usual language in the post-meeting statement to signal that it is preparing to wind down its stimulus package later this year.
BNP Paribas currency strategist Sam Lynton-Brown said;
‘We’re expecting them to change their assessment around the risks – at the moment they have them to the downside, but we have an out-of-consensus call that they’re likely to say either that downside risks have diminished or become more balanced.’
The Euro was also pressured this morning by the release of France’s latest Trade Balance figures, with the reading showing that France’s trade deficit hit an all-time high in January.
Data shows that France’s deficit rocketed up from €3.6bn to €7.9bn at the start of the year, performing far worse than expected.
The sudden drop in exports is being blamed on poor foreign sales by Airbus, as the aircraft maker delivered just 25 planes in January, down from 111 the month before. Planes helicopters and other aircraft account for nearly 10% of French exports.
Meanwhile imports were driven higher by France’s energy demands, with rising oil prices putting more pressure on imports.
Meanwhile the US Dollar was strengthened by upbeat labour figures this afternoon, with ADP’s Employment Change data reporting a surge in new hirings last month.
The reading shows that companies in the US hired 298,000 new workers in February, this was an improvement over the previous month’s figures of 261,000 and was notably higher than expectations that it would fall to 190,000.
With a healthy labour market seen as a major indicator for the Federal Reserve that the economy is growing, it is likely to cause the bets that the Fed will hike interest rates in March to surge even higher.
CME Group’s FedWatch tool now places the odds of a rate hike later this month at over 90%, a similar level to December, when the Fed last voted to raise interest rates.
However the US Dollar has not witnessed the same explosive growth it enjoyed back at the tail end of last year as markets still remain concerned about Trump’s economic credentials, with the new President still yet to detail this economic plans for his first term in office.
Looking ahead the Euro is likely to remain on the back foot ahead of the Dutch elections next week as investors tread carefully in light of populist candidate Geert Wilders’ strong performance in recent polls.
Observers will be waiting to see how many seats Wilders’ Freedom Party gains next week, with his performance being used as an early indicator of how other populist movements may fare in other European elections this year.
Meanwhile the US Dollar is likely to rise even further at the end of week as analysts predict that February’s labour figures will show that the unemployment rate fell from 4.8% to 4.7%.
Current Interbank Exchange Rates
At the time of writing the EUR USD exchange rate was trending around 1.05 and the USD EUR exchange rate was trending around 0.94.