- FOMC meeting results ahead – EUR USD edges higher
- Euro headwinds as Juncker considers fines – Spain and Portugal budget deficits in focus
- Hopes of more upbeat Fed boost USD – Markets look for confidence in FOMC statement
- FOMC meeting forecast to provoke USD movement – No changes to monetary policy expected
Investors were awaiting the latest interest rate decision from the Federal Reserve, allowing EUR USD to advance, despite concerns over budget deficits.
Budget Deficit Concerns Weigh on Euro but FOMC Meeting Boosts Common Currency
The Euro is currently making strong gains today, advancing 0.1% against the US Dollar (USD), 0.3% against the Pound (GBP), 0.5% against the Australian Dollar (AUD) and New Zealand Dollar (NZD) and 0.7% against the Japanese Yen (JPY).
Weighing on the Euro, however, are rumours that Jean-Claude Juncker, European Commission President, has changed his mind regarding the idea of levying sanctions against Spain and Portugal. The European Commission has been considering imposing fines on the Iberian countries due to their repeated breaching of EU budget deficit rules. According to EU guidelines, the member states should not run a shortfall in excess of 3% of GDP.
However, there has been some argument over whether or not the Commission should actually impose punitive measures upon Spain and Portugal. Juncker was initially opposed to the idea, but sources close to him have suggested that his opinion has changed. If this is true – and he sides with the commission when they discuss their options – it will be the first time an EU member state has been fined for breaching deficit regulations. Options open to the EC include fines of up to 0.2% of GDP (€2.2 billion for Spain and €358 million for Portugal), or blocking access to infrastructure funding.
The day’s only impactful data release was the German GfK Consumer Confidence Survey. A marginal decline was predicted, but the actual decrease was even smaller than predicted, with the index dropping just -0.1 point to 10.0. Meanwhile, French consumer confidence dipped to 96 points in July, while Spanish retail sales posted a strong acceleration on the month and on the year, growing from -0.9% to 1.7% and 2.3% to 5.6% respectively.
Italian consumer and business confidence edged higher, suggesting that the so-called banking crisis isn’t affecting domestic sentiment, helping to ease investor fears.
Traders Unsteady ahead of Federal Open Market Committee Decision, USD EUR Weakens
The US Dollar is making unsteady progress today, advancing against the majority of its peers. The approaching Federal Open Market Committee (FOMC) meeting is keeping investors unsettled. Market consensus is that there will be no changes made to monetary policy, but the accompanying statement could contain clues regarding Fed policy going forwards. The hope is that recent positive data – including the recovering Non-Farm Payrolls, strong housing sales and low jobless claims – will have improved the Fed’s outlook on the US economy. If this is the case it would suggest there could still be monetary tightening before the end of the year; markets have barely priced in the possibility of higher interest rates by the end of December’s meeting, with still a 48.5% probability that interest rates will remain frozen.
Anticipation of a more hawkish FOMC is supporting the US Dollar, but uncertainty remains over exactly what – if anything – the statement will signal.
EUR USD Exchange Rate Forecast; FOMC Decision to Provoke Euro US Dollar Volatility
There is no Eurozone data left for release today. The US calendar contains multiple data releases, although these could be ignored given their proximity to the key FOMC announcements. The most important of these is the preliminary durable goods orders for June, which are expected to contract at a slower pace of -1.1% compared to the previous decline of -2.3%. After that, all eyes will be on the Fed meeting and accompanying releases.
A hawkish Fed will boost the US Dollar, although the Euro may resist depreciation as the European Central Bank (ECB) also wants the Fed to be upbeat. The ECB is hoping the Fed will hike rates, which would weaken the Euro thanks to the subsequent advancement of the US Dollar, potentially avoiding the need for more ECB stimulus. While the prospect of a weakening Euro is clearly not appealing to investors, the idea that the Eurozone may strengthen without further central bank assistance is likely to be taken positively.
Current EUR, USD Conversion Rates
The Euro US Dollar (EUR USD) exchange rate is currently trading between 1.0978 and 1.1004, while the US Dollar Euro (USD EUR) exchange rate is trending in the region of 0.9085 and 0.9103.