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EUR USD Exchange Rate Falls from 1.20 Despite Low Fed Rate Hike Bets

  • EUR USD Exchange Rate Breaks 1.20 – But slips from highs on Wednesday
  • Central Bank News Drives Markets – As well as US hurricane disaster
  • EUR Update: German Inflation Meets Expectations – Eurozone inflation tomorrow
  • USD Forecast: US NFP Data on Friday – As well as manufacturing PMI

Updated 16:44 BST 30/08/2017:

EUR USD Exchange Rate Tumbles on Wednesday

After hitting a multi-year-high of 1.2064 on Tuesday, the EUR USD exchange rate tumbled.

This was partially due to strong US data, as well as investors selling the strong Euro from its highs.

Wednesday’s US data impressed. The Q2 Gross Domestic Product (GDP) projection was revised higher from 2.7% to 3% and the latest personal consumption expenditure data met forecasts.

[Previously updated 13:01 BST 30/08/2017]

Investors sold the EUR USD exchange rate ahead of the publication of Germany’s inflation projections on Wednesday morning.

Spanish inflation fell short of expectations, coming in at 1.6%.

However, the Eurozone’s latest confidence surveys from August largely beat expectations. Business confidence came in at 1.09 despite being forecast to only reach 1.06.

Germany’s yearly inflation rate came in at 1.8%, while the monthly inflation rate hit 0.1%. As these met forecasts, they had little impact on Euro movement.

The Euro’s movement later today may be limited as investors await Thursday’s key data, which includes unemployment rates from Germany and the Eurozone, as well as a Eurozone inflation projection.

[Previously updated 16:51 BST 29/08/2017]

The Euro to US Dollar exchange rate held most of its gains on Tuesday afternoon and trended above the key level of 1.20.

The US Dollar remained weak when American markets opened due to low Federal Reserve interest rate hike bets, as well as the ongoing tropical storm in Houston, Texas.

Investors also have low confidence that US President Donald Trump will be able to make much progress on tax reform plans. Analysts are hoping the White House will go into more detail on tax plans in the near future.

[Published 10:58 BST 29/08/2017]

The EUR USD exchange rate has soared since last week as investors digest the latest central bank news from the monetary policy symposium in Jackson Hole. The latest Eurozone data has also helped to support demand for the shared currency.

Euro US Dollar trade jumped from 1.1825 to 1.1925 last week. Today the pair has surged again, breaking through the key level of 1.20 for the first time since January 2015. EUR USD currently trends near 1.2060.

Euro (EUR) Sturdy as Investors Hope for Central Bank Tightening

The Euro has strengthened since last week, as investors took a lack of dovishness from European Central Bank (ECB) President Mario Draghi as hawkishness.

Last week saw Draghi hold a speech at the monetary policy symposium at Jackson Hole.

Investors were hoping Draghi would offer more hawkish forward guidance on monetary policy, but rumours had emerged that the Draghi would be addressing concerns on the strength of the Euro.

If Draghi had criticised the Euro’s strength, it would have worsened concerns that the ECB would put off tightening monetary policy until the Euro weakened.

However, Draghi made no mention of monetary policy or the shared currency in his Jackson Hole speech.

This indicated to traders that the bank’s policy plan was on track and that monetary policy would begin to be normalised over the next half a year.

Some analysts remain concerned that the strength of the Euro will increasingly become a thorn in the ECB’s side though, especially as EUR USD rises above 1.20. According to Greg McKenna, chief market strategist from AxiTrader;

‘Mario Draghi will be tearing his hair out.

If saying nothing can drive the Euro to its highest level since January 2015 then the ECB President and his colleagues will be genuinely worried about the impact an announcement to further reduce its QE programme could have on the single currency.’

Still, central bank speculation aside the Euro has been supported by solid domestic data this week too.

Yesterday’s Italian consumer and business confidence reports from August both beat expectations, and GfK’s German consumer confidence print for September unexpectedly improved from 10.8 to 10.9.

US Dollar (USD) Weakens as Fed Rate Hike Bets Fall

Market hopes that the Federal Reserve could hike US interest rates one more time this year continue to fade and the latest drop in Fed bets was due to the tone taken by Fed Chairwoman Janet Yellen at Jackson Hole last week. This has caused investors to sell the US Dollar.

Similarly to ECB President Draghi’s speech, Yellen avoided discussion of monetary policy during her speech. She focused on the importance of financial regulation, such as the Dodd-Frank regulation, instead.

While both Draghi and Yellen avoided discussing monetary policy, the difference in market reaction to both central bank bosses indicated how investors are feeling about the nations’ respective policy outlooks.

With Fed policymakers recently cautious due to underwhelming US inflation and mixed US data, Fed rate hike bets continue to drop.

Markets currently bet that there is a 66% chance the Fed will leave interest rates frozen until 2018. Only 31% bet the Fed will hike rates again, while almost 2% think the bank could even cut interest rates.

Investors are even becoming uncertain about the Fed’s aims to unwind its huge balance sheet.

On top of central bank bearishness, the US Dollar has also been weakened by the tropical storm disaster in Houston, Texas.

Hurricane Harvey has been wreaking havoc in one of the US’ most populous cities with floods and storms. On top of the danger it poses to citizens, the disaster will have a negative impact on economic activity and oil refinery.

EUR USD Exchange Rate Forecast: German Inflation Ahead

The coming days will see the publication of various key Eurozone and US ecostats, meaning the EUR USD exchange rate could see shifts in direction.

German and Spanish inflation projections for August will be published tomorrow, as well as August’s finalised Eurozone consumer confidence stats.

German unemployment and retail sales will be published on Thursday, as well as Eurozone unemployment. Lastly, Markit’s final August manufacturing PMIs for the bloc will come in on Friday.

As for US data, the US Dollar is unlikely to see a major shift in movement until Friday, when the August Non-Farm Payroll report will be published.

If these and Wednesday’s US GDP results impress, bets of a tighter monetary policy outlook from the Fed will rise and the US Dollar will see stronger demand.

EUR USD Interbank Rate

At the time of writing this article, the EUR USD exchange rate trended in the region of 1.2045. The US Dollar to Euro exchange rate traded at around 0.8300.