- Euro May Rally on ECB Predictions – ECB predicted to taper quantitative easing.
- US Presidential Election – Predicted win for Clinton helps stabilise US Dollar.
- USD Gains on Rate Hike Predictions– Investors await Yellen speech later today.
- US Domestic Data – US set to release a string of data later today.
The EUR USD exchange rate rose by around half a cent last night as mixed US ecostats provided the Euro (EUR) with some respite against the recent pressure from the US Dollar (USD), but the pairing plummeted back down to 1.10 earlier this morning.
Euro (EUR) May Gain as Markets Speculate on ECB Bond Buying
There is a possibility the Euro could rally against the US Dollar as markets begin to speculate on whether the European Central Bank (ECB) will begin to wind down its quantitative easing programme sooner than planned.
According to Thomas Flury, Head of Strategists at UBS Wealth Management, the ECB would need to taper to help meet inflation;
‘Europe has enjoyed a long period with an undervalued currency. The Euro should eventually begin appreciating, driven by a rise in inflation and/or signals that the European Central Bank is discussing tapering its quantitative easing programme.’
While some analysts had predicted that the ECB may have begun the winding down process following next Thursday’s meeting, Flury suggests that ‘it will most likely make the announcement sometime next year’.
Clinton Helps to Provide Stability for the US Dollar (USD)
Democratic candidate Hilary Clinton is widely believed to taken the lead in the US presidential elections, helping to provide some stability for the US Dollar.
Clinton has taken a significant lead in polls against Republican candidate Donald Trump following the release of a 2005 video last week, in which Trump was heard making lewd remarks about women and boosting about what his ‘star power’ allowed him to get away with.
However traders will not want to make the same mistakes they made with the UK referendum by jumping on polling data too soon and are likely to remain slightly dovish towards the ‘Greenback’ in case of a Trump victory.
USD Bolstered by Rate Hike Bets
The US Dollar continues to gain strength as traders make hawkish bets on the Federal Reserve hiking interest rates in December. The Fed decided against raising rates during the December meeting but indicated that it may be willing to increase borrowing costs later on in the year should the US economy continue to grow.
With recent US ecostats being largely positive, investors have been flocking to the US Dollar ahead of November’s Fed meeting in anticipation of the rate hike.
Markets will be focusing on the speech by Fed Chair Janet Yellen later today at the Boston Fed Conference in hopes that she might hint at a hike.
EUR USD Exchange Rate Forecast: Euro to Sink Under Wave of US Data
The Euro will likely be under a lot of pressure later as the US releases a torrent of domestic data. The Dollar is likely to strengthen on the back of the advance retail sales report which is expected to rise to 0.6% in September from -0.3% the previous month.
Forecasts point to today’s data showing growth across the board, which will allow the ‘Greenback’ to apply significant pressure to the Euro.
However should the majority of the US data fail to perform as predicted the EUR USD exchange rate may end the week higher than expected.
Current Interbank Exchange Rates
At the time of writing the EUR/USD exchange rate was trending around 1.10 and the USD/EUR exchange rate was trending around 0.90.