The much-awaited Fed rate hike has materialised, with an improved 2017 monetary policy outlook weakening EUR USD exchange rates.
- EUR USD falls to 14-year low – Euro sold after Fed suggests three hikes in 2017
- USD EUR rises – Could the Euro US Dollar rate be headed down to parity?
- EUR USD exchange rates forecast – US CPI could firm 2017 hike hopes
The huge level of expectation surrounding the Fed policy meeting means that the US Dollar is already strong on bets of a hike, but it has still managed to rise against the Euro.
Profit-Taking on US Dollar Boosts EUR USD Exchange Rates
Update, 11.35, 16/12/2016; The Euro US Dollar exchange rate is rebounding from its 14-year low today following Wednesday’s Federal Reserve announcements. Traders are profit-taking on the ‘Greenback’, helping the Euro to recover some of yesterday’s losses.
EUR USD Slump Continues as Greek Bailout Tensions Worsen
Update, 15/12/2016; The Greek Parliament is set to vote on Alexis Tsipras’ plans to give a Christmas bonus payment to around 1.6 million low-income pensioners. Eurogroup, infuriated that the Prime Minister would commit to extra spending while in the middle of negotiating the next step in the bailout process, has said it will pull the recently-agreed debt relief package, which would have reduced Greece’s debt pile by -20% by 2060. Parliament looks set to approve the motion, meaning Greece can likely wave goodbye to debt relief for the time being.
EUR USD Exchange Rates Fall after Fed Announces ‘Hawkish Hike’
Markets may have been pricing in huge odds of monetary tightening this month, but the Federal Reserve has still managed to take the markets by surprise. A 0.25% hike to the base rate will have shocked no one, but revising expectations for 2017 to three hikes from two did – even if traders had been hoping for as much.
As Danske Bank explains;
‘Against expectations, the median ‘dot’ for next year was revised up to three hikes from two hikes previously, while the median ‘dot’ for 2018 was unchanged at three hikes. It was the first time since September 2014 that the Fed revised up its ‘dots’. The USD strengthened and US yields moved higher on the back of the hawkish surprise from the Fed.’
The ‘dots’ in question refers to the ‘dot plot’ – a graph showing where each policymaker thinks interest rates will be at certain points during the next two years.
While policymakers all have different opinions, the fact the median ‘dot’ has moved up shows the majority of policymakers expect more rate hikes than before.
It is this improved outlook, rather than the 0.25% increase in borrowing costs, that has fuelled a further US Dollar rise and pushed EUR USD exchange rates down to a 14-year low today.
EUR USD Exchange Rates; Parity Questions Forecast to Weaken Euro if US CPI Prints Positively
Further US data is due for release today. While the US Dollar may already be bloated on the news of the rate hike, there is potential for the ‘Greenback’ to be pushed higher as EUR USD exchange rates weaken.
With the policy outlook for 2017 now firmly in focus, today’s US inflation data could help firm the likelihood of Fed tightening in the coming months. This would have analysts returning to the question of parity; will 2017 see EUR USD exchange rates fall to 1.00?
Interbank EUR USD Exchange Rates
At the time of writing EUR USD exchange rates were trading around 1.05, while the USD EUR exchange rate was trending in the region of 0.95.