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EUR USD Exchange Rate Rises, But Draghi Forecast to Announce QE Extension

  • EUR USD Trends Higher – Markets expect measured QE extension.
  • US Dollar Stable ahead of Fed Rate Decision – Markets certain of December rate hike.
  • US Jobless Claims Ahead – Predicted drop may bolster USD.

The Euro US Dollar (EUR USD) exchange rate has reached a three-week high after rising this morning as markets prepared for the European Central Bank’s (ECB) policy meeting this afternoon.

Euro US Dollar (EUR USD) Lifted by Conservative Estimates for QE

The recent uptrend in the Euro US Dollar (EUR USD) exchange rate comes just as the ECB is expected to announce an extension to its quantitative easing programme past March 2017 when it meets later today.

With Eurozone inflation trailing far behind the Bank’s target of 2.0% and recent comments from ECB President Mario Draghi pointing towards additional stimulus, investors have already accepted that the central bank will seek to extend its monetary easing.

The recent uptick in the Euro has largely been caused by predictions that Draghi will announce a conservative extension to the ECB’s €80bn a month QE programme, with markets predicting that it will only be extended by another six months thanks to recent growth in the Eurozone. As Fred Ducrozet of Pictet Wealth Management explains;

‘Amid growing evidence of a more robust recovery and improved policy transmission, there is a case for a reduction in the pace of asset purchases at some point in 2017, if anything because stocks matter more than flows in the ECB’s view.’

Markets will likely be focused on how the Bank plans to taper its stimulus package and whether the ECB will look to slowly trim its bond buying each month so as not to shock the markets.

However a more dovish tone from Draghi is likely to cause the Euro to plummet, with some analysts predicting that pressure from Italy’s banking sector crisis could force Draghi’s hand and see him call for a prolonged period of monetary easing.

US Dollar Stable as Fed Rate Meeting Nears

Meanwhile the US Dollar (USD) remains strengthened by the upcoming Federal Reserve rate meeting, with investors almost unanimously predicting that Fed policymakers will vote to raise interest rates this month.

Market odds of December rate hike currently sit at around 95% thanks to recent comments from members of the Fed and improvements in the US economy, with the key stat of US unemployment falling to 4.6% in November, a nine-year low.

However the near certainty of the rate hike has also caused the ‘Greenback’ to remain flat as investors look to other markets for profit, having already priced in a rise in USD ahead of the rate hike.

EUR USD Exchange Rate Forecast: Fall in US Jobless Claims may Bolster US Dollar

The EUR USD exchange rate may slide this afternoon when the US releases its latest Jobless Claims figures, with markets predicting that they will haven fallen from 268k to 255k thanks to a recent uptick in US employment data.

Meanwhile the Euro is likely to dip tomorrow as markets predict that Germany’s latest Trade Balance will decline from €24.4bn to €22.0bn in October, although an expected rise in German imports and exports could help to offset a drop in the trade balance surplus.

Long-term EUR USD could find itself reaching parity in the New Year as markets begin to predict that the Fed will make additional interest rate hikes in 2017.

Current Interbank Exchange Rates

At the time of writing the EUR/USD exchange rate was trending around 1.07 and the USD/EUR exchange rate was trending around 0.92.