- EUR USD Nears Parity – US Dollar strengthened by near-certainty of a Fed rate hike.
- German Consumer Confidence Rises – Euro rallies as Gfk’s report shows a slight improvement.
- Italian Referendum Weighs on Euro – Rejection of constitutional changes could cause PM to resign.
The EUR USD exchange rate rallied by around half a cent this morning after plummeting to a 20-month low early on Thursday. Markets fear that the pairing may soon reach parity.
Euro US Dollar (EUR USD) Pressured by Investor Fed Rate Hike Certainty
The Euro (EUR) continues to skirt parity with the US Dollar (USD) despite posting gains this morning. Any EUR USD uptrend is expected to be short lived amid market certainty that the Federal Reserve will raise interest rates at their next meeting – the odds of a December rate hike are currently over 90%.
The release of the minutes from the Fed’s November meeting added further support to investor bets;
‘Most participants expressed a view that it could well become appropriate to raise the target range for the federal funds rate relatively soon, so long as incoming data provided some further evidence of continued progress toward the committee’s objectives.’
This was in contrast with September’s meeting when there were only a few Fed officials who sought an immediate rise in interest rates.
Fed members are likely to have re-adjusted their stance thanks to the recent growth in the US economy, with Wednesday’s surprise surge in Durable Goods Orders likely to have helped considerably as orders skyrocketed from -0.3% to 4.8% in October, flying past predictions of 1.7%.
Euro (EUR) Mounts Recovery Thanks to Rise in German Consumer Confidence
The Euro US Dollar exchange rate rallied overnight thanks to a slight improvement in Germany’s Consumer Confidence as Gfk’s latest report showed that it saw a modest increase from 9.7 to 9.8 in December, beating expectations that it would remain flat.
While Gfk reported that Germans were ‘more optimistic about overall economic prospects’ in the run up to Christmas, it is worth noting that this data was compiled before the surprise victory of Donald Trump in the US presidential election, so this will not reflect any potential worries the new President-elect may have caused.
Italian Referendum Could Cause Euro US Dollar Chaos
The Euro US Dollar exchange rate is likely to remain on the back foot as investors continue worrying about the potential that a new populist government will take power in Italy as the current Prime Minster, Matteo Renzi has vowed to quit if next month’s constitutional referendum is rejected.
This may open the door for the Five Star Movement to gain power, an anti-establishment party that has Eurosceptic leanings, causing markets to fear that there may be a further chaos in the European Union if Italy follows Britain’s example and decides to split from the EU.
EUR USD Exchange Rate Forecast: US Advance Goods Balance Ahead
The EUR USD exchange rate may be able to advance further later today with the release of the latest US Trade Goods Balance data as analysts predict that it will slide from $-56.08billion to $-59.20billlion in October.
Looking to next week the Euro may move further away from parity with the Euro if Wednesday’s German Consumer Price index shows any notable improvement over last month’s figures of 0.8%.
Meanwhile the US will release its latest GDP report. It could help to strengthen the US Dollar if it shows a rise from 2.9% to 3.0% as predicted.
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.