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EUR USD Exchange Rate Stabilises Following Surge in Industrial Production

  • EUR USD Stabilises after Industrial Data – Production Skyrockets while German GDP also impresses.
  • Euro Policymakers split – Potential extension of its QE programme caused division.
  • Fed Presidents Support Rate Hikes – Hawkish speeches on Thursday reverse fall in US Dollar

The Euro US Dollar (EUR USD) exchange rate held steady on Thursday as investors were upbeat following the release of some impressive data from the Eurozone.

Euro US Dollar (EUR USD) Stable as Industrial Production Jumps

The Euro was bolstered yesterday by the release of the Eurozone’s latest Industrial report, which showed that production exploded in November, rising from 0.8% to 3.2% and sailing past modest expectations that it would rise to 1.5% as it reached its highest levels since January last year.

The dramatic jump in production also caused investors to speculate whether it could signal notable growth in the Eurozone’s GDP as Howard Archer, economist at IHS Markit explains;

‘Even allowing for the fact that industrial production has been highly erratic, November’s jump reinforces our belief that Eurozone GDP growth could well have reached 0.5% quarter-on-quarter in the fourth quarter of 2016. This would be up from 0.3% in both the third and second quarters.’

The single currency was also reinforced by a rise in German GDP as Germany’s economy grew by 1.9% in 2016, up from 1.7% the year before and beating forecasts that it would rise to 1.8%. The rise was the German economy’s best performance in five years and helps to dispel any concerns of a slowdown in the Eurozone’s largest economy.

Euro Strengthened by Release of ECB Minutes

The Euro traded relatively flatly with the US Dollar on Thursday as the minutes from the ECB’s latest policy meeting showed that members of the central bank were split over the possibly of extending its economic stimulus package past December this year.

While ECB President Mario Draghi has been dovish about his plans for extending the Bank’s quantitative easing programme, saying that the bank’s policy allowed him to be ‘open-ended’ towards future bond-buying as the Bank pursues a 2% inflation rate in the Eurozone.

However, the minutes showed that some policymakers had rebelled against Draghi as they argued against further QE, leading investors to speculate that the ECB could begin to taper its stimulus package earlier than first thought.

Hawkish Fed Speeches Boost US Dollar

The US Dollar was able to claw back some of its recent losses yesterday following a number of Hawkish remarks by Federal Reserve members in the US.

Market sentiment rose following speeches from Fed presidents; Bullard, Harker, Lockhart and Evans in regards to future rate hikes this year, after the Fed predicted that it will raise US interest three times in 2017.

The overall tone of the speeches was optimistic as they largely supported further rate hikes later this year, although they remained cautious in regards to policy changes as they wait to see what the incoming administration has in planned in terms of economic policy.

EUR USD Exchange Rate Forecast: US Retail Sales Ahead

The EUR USD exchange rate may fall this afternoon as the US releases its latest Retail Sales data, with figures expected to show that sales jumped from 0.1% to 0.7% in December thanks to the uptick in activity over the Christmas period.

Meanwhile the Euro will have to wait until Tuesday for the next major Eurozone data, when ZEW releases its German Economic survey, which is expected to report that sentiment rose at the start of 2017, strengthening the Euro.

Current Interbank Exchange Rates

At the time of writing the EUR USD exchange rate was trending around 1.06 and the USD EUR exchange rate was trending around 0.94.