- EUR USD Climbs after ECB Bulletin – Central bank is upbeat about Eurozone inflation.
- Italian Banking Crisis – Euro on cliff edge as Italian government prepare bailout for its third largest bank.
- Slew of US Data Due Later – Decline in Goods Orders may pressure US Dollar.
The Euro US Dollar (EUR USD) exchange rate has continued to climb this morning after the European Central Bank issued its latest economic bulletin.
Euro US Dollar (EUR USD) Advances as ECB Predicts Rise in Inflation
The Euro continues to appreciate against the US Dollar this morning as the ECB struck a hawkish tone in its latest economic bulletin.
The Bank forecast that Eurozone inflation will exceed 1% at the start of 2017, as accelerating growth in the global economy helps improve prospects in the Eurozone. As the ECB explained;
‘The medium-term outlook for global activity remains one of strengthening growth, albeit below its pre-crisis pace. Overall, growth appears to be holding up in advanced economies and seems to have bottomed out in emerging market economies.’
However the central bank did warn that uncertainty due to Donald Trump’s victory in the US elections and unstable commodity prices may still place pressure on the global economic recovery.
Monte dei Paschi Continues to Cast Shadow over Euro
The Euro may come under renewed pressure today as Italy’s third largest bank, Monte dei Paschi di Siena looks set to receive a government bailout after failing to attract investors.
The bank had been seeking to raise €5bn in private investment in order to stay afloat, but it looks increasingly likely that it will not secure the money before the end of year deadline imposed by the ECB, after Qatar’s sovereign wealth fund pulled out from negotiations.
New EU rules would mean a bailout would severely restrict the bank’s ability to lend, and is also likely to cause concerns among taxpayers in Italy that they will have to foot the bill. This may lead to increased calls for an early election next year, which could potentially see a more EU hostile party take power.
Also of concern to traders is that the drop in investor confidence in Italy could indicate a wider decline in sentiment across Europe. If investors are unwilling to invest in Monte dei Paschi, despite serious plans from new chief executive Marco Morelli to reverse the bank’s fortunes, then how likely are they to invest in other European banks that are facing similar situations?
EUR USD Exchange Rate Forecast: Durable Goods Orders May Drag on US Dollar
The EUR USD exchange rate may rally further later today as the US releases its Durable Goods Orders data, which is expected to show that orders fell from 4.6% to -4.5% in November, likely weighing heavily on the US Dollar.
However with a slew of other ecostats to be released later in the afternoon such as the GDP report, which is predicted to show that US growth rose from 1.4% to 3.3% in the third quarter, any slump in the ‘Greenback’ may be short lived.
Meanwhile Euro investors will be hoping that tomorrow’s GfK consumer confidence survey in Germany will perform as well as the Eurozone survey earlier in the week and make a notable jump from 9.8 in January.
Current Interbank Exchange Rates
At the time of writing the EUR USD exchange rate was trending around 1.04 and the USD EUR exchange rate was trending around 0.95.