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Euro (EUR) Exchange Rates Rally on Core Inflation, Weak US Dollar

EUR/USD Exchange Rate Forecast to Surge despite Negative Annual Eurozone Consumer Prices

The Euro to US Dollar (EUR/USD) exchange rate surged by around 1.0% on Thursday afternoon.

The single currency extended gains, initiated by yesterday’s robust construction output report, versus nearly all of its major peers today. The appreciation can be linked to ongoing US Dollar weakness after the Federal Open Market Committee (FOMC) reduced rate hike expectations.

Also supporting demand for the Euro today was mostly positive domestic data. Whilst annual Eurozone inflation remained at -0.2% in February, the monthly score of 0.2% bettered the median market forecast 0.1%. Additionally, February’s Eurozone Core Consumer Prices eclipsed the market consensus of 0.7% by reaching 0.8%.

In response to the Eurozone inflation figures, Will Martin writing for Business Insider, said; ‘The CPI figures come exactly a week after the European Central Bank and its president Mario Draghi announced a series of new monetary policy measures, including cutting all its base rates, and extending its programme of bond buying. The measures are designed to try and boost stalling inflation, as well as growth, within the Eurozone. So far the ECB’s negative interest rate policy (NIRP) has failed to serve its purpose effectively, however, today’s slight uptick in core CPI will give the bank something of a boost.’

The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1329.

USD/EUR Exchange Rate Forecast to Dive on Dovish Fed Outlook

After the Federal Reserve announced a reduction in interest rate hike forecasts for 2016, the US Dollar dived versus its major peers. Policymakers cited global external risks, particularly the China-led slowdown in emerging markets, as the principle reason for reducing rate hike predictions.

The Federal Reserve statement read; ‘The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.’

However, some analysts believe that this was an attempt to jawbone given that domestic data could force the Fed into hiking rates during a period of US Dollar overvaluation. ‘We remain of the view that the data will in due course force the Fed to raise rates faster than they or the markets expect,’ said Ian Shepherdson, chief economist at Pantheon Macroeconomics. ‘Denial only works up the point where the data are unambiguously telling the opposite story; that point is not far off.’

The Euro to US Dollar (EUR/USD) exchange rate dropped to a low of 1.1204 during Thursday’s European session.

Euro to US Dollar Exchange Rate Forecast: US labour Market Data to Provoke Volatility

Later during Thursday’s European session the publication of US labour market data and the Philadelphia Fed manufacturing report should cause changes to the most traded FX pairing on the globe. However, there is a high chance that the combination of Euro weakness and fallout from yesterday’s Fed statement will overshadow domestic data results.

Friday should see increased EUR/USD exchange rate volatility in response to the US University of Michigan Confidence report.

The Euro to US Dollar (EUR/USD) exchange rate reached a high of 1.1342 during Thursday’s European session.