- EUR USD Exchange Rate Trades Near 1.20 – Still below last week’s highs
- US Dollar Weakened by Data – Durable goods orders cause Fed rate hike bets to drop
- EUR Update: ECB Leaves Policy Frozen – Investors buy Euro following Draghi conference
- USD Forecast: Speeches from Fed Officials Ahead – Could influence USD movement on Friday
Updated 16:56 BST 07/09/2017:
EUR USD Exchange Rate Touches 1.20 Again on ECB News
Demand for the Euro surged following European Central Bank (ECB) President Mario Draghi’s press conference.
Draghi indicated that the bank had already had some very brief preliminary discussions on quantitative easing (QE), but that most major decisions would be made during October’s policy meeting.
This was the most specific forward guidance yet on when markets can expect news on the ECB’s QE scheme.
Draghi also hesitated to speak about the strength of the Euro. This indicated to markets that the bank didn’t consider the currency’s value a major issue just yet.
Overall, the news caused the EUR USD exchange rate to briefly touch on a new weekly high of 1.2046, though this wasn’t as high as last week’s 2017 high.
The pair continued to test levels above 1.20 for the remainder of the European session.
[Previously updated 12:55 BST 07/09/2017]
Investors firmed in the EUR USD exchange rate during Thursday morning trade in anticipation of the European Central Bank’s (ECB) September policy decision.
The highly anticipated decision went largely as expected, with the bank leaving monetary policy frozen.
No changes were made to the bank’s quantitative easing (QE) scheme, and the tone of the bank’s statement was largely familiar.
EUR USD slipped slightly from the day’s new weekly high of 1.1985, as investors awaited ECB President Mario Draghi’s afternoon press conference.
[Previously updated 16:46 BST 06/07/2017]
The Euro to US Dollar exchange rate saw a more solid advance towards the end of Wednesday’s European session, as markets were shocked by the latest Fed news.
Federal Reserve Vice Chairman, Stanley Fischer, suddenly announced his resignation on Wednesday, causing further uncertainty about the Fed’s future and weakening the US Dollar.
US President Donald Trump now has multiple Fed appointments to fill.
Fischer’s term was due to end in June 2018.
Wednesday’s US data was also relatively disappointing. Non-manufacturing PMIs for August from both ISM and Markit fell short of projections.
[Published 11:50 BST 06/09/2017]
The EUR USD exchange rate has edged higher despite mixed demand for the Euro and underwhelming Eurozone ecostats, as investors express disappointing with low Fed rate hike bets and poor US goods orders data.
Euro US Dollar trade briefly hit a multi-year-high of 1.2059 last week but ultimately dropped and ended the week at around 1.1860. The pair has since recovered slightly and currently trends above the level of 1.19 again.
Euro (EUR) Movement Softens Ahead of ECB Meeting
The Euro has been able to advance against a weak US Dollar, despite market anxiety ahead of Thursday’s highly anticipated European Central Bank (ECB) policy decision.
The ECB is expected to leave monetary policy frozen but offer more indication on when it could make a decision on lightening its aggressive quantitative easing (QE) scheme.
Some investors are concerned that the ECB could take a more cautious or dovish tone than hoped due to the recent strength of the Euro.
In fact, analysts have recently predicted that the ECB is likely to downgrade its inflation forecasts for the coming year due to the persistent strength of the shared currency.
According to Marie Owens Thomsen, chief economist from Indosuez Wealth Management;
‘The ECB’s update of their forecasts will be very important for gauging the likely evolution in policy. The forecasts might reveal to what extent the ECB thinks that the stronger external value of the Euro will impact GDP and inflation.’
Overall though, concerns that the bank could extend its QE scheme instead of downsizing it in some way have largely faded.
This has been part of the reason behind the Euro’s recent strength and has caused markets to expect mid to long-term strength in the currency outlook too.
Still, uncertainty about the upcoming ECB meeting as well as underwhelming Eurozone ecostats have limited the Euro’s movement in recent sessions.
Markit’s final August Eurozone PMIs fell short of projections. Services missed 54.9 forecasts with a result of 54.7, while the overall composite PMI for the bloc missed 55.8 projections and came in at 55.7.
US Dollar (USD) Slumps on Low Fed Rate Hike Bets
It’s largely due to US Dollar weakness that the EUR USD exchange rate has advanced this week, as recent US ecostats have disappointed and Federal Reserve officials have taken dovish tones.
July’s final US durable goods orders report came in with an unexpectedly large contraction of -6.8%, well below the projected figure of -2.9%.
This data weighed on hopes that the US economy would be able to support a third 2017 Fed rate hike.
On top of this, dovish Fed policymaker and Minneapolis Fed President, Neel Kashkari, argued that the Fed’s recent rate hikes may have done harm to the US economy.
His comments came in on Tuesday evening and are the latest in a string of cautious comments from Fed officials. He stated;
‘It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations … These premature rate hikes that we are embarking on, they’re not free, and I think we need to remind ourselves of that.’
While Kashkari is known as a dovish policymaker, his tone still concerned markets and conflicted with the apparent confidence of the Fed earlier in the year.
EUR USD Exchange Rate Forecast: ECB Meeting in Focus
The biggest event for Euro traders this week will of course be Thursday’s September European Central Bank (ECB) policy decision.
Markets expect a cautious but optimistic tone from the bank, so any deviation from this expectation could influence Euro movement.
If the ECB issues fresh warnings on the value of the Euro and indicates it could delay its QE adjustment plans, the Euro could plunge.
On the other hand, if the bank shows no concern over the single currency or offers more details on its QE plans than expected, the Euro will see stronger demand.
This is likely to be the primary cause of EUR USD exchange rate movement towards the end of the week.
However, Thursday’s US jobless claims, as well as various speeches from Federal Reserve officials through Friday, could inspire Fed rate hike bets and US Dollar strength too.
EUR USD Interbank Rate
At the time of writing this article, the EUR USD exchange rate trended in the region of 1.1942. The US Dollar to Euro exchange rate traded at around 0.8371.