The Euro to Australian Dollar (EUR/AUD), Euro to Indian Rupee (EUR/INR), Euro to British Pound (EUR/GBP) and Euro to New Zealand Dollar (EUR/NZD) exchange rates were all bearish in the first half of Wednesday’s European session; meanwhile the Euro to US Dollar (EUR/USD) exchange rate gained.
Despite Greece being granted an extension in its austerity deal, many officials have voiced concerns over the situation and continue to weigh the single currency down.
Earlier… The Euro to Australian Dollar (EUR/AUD) and Euro to New Zealand Dollar (EUR/NZD) exchange rates were both trending higher in the first half of Tuesday’s European session after Reserve Bank of New Zealand (RBNZ) statements; meanwhile the Euro to British Pound (EUR/GBP), Euro to US Dollar (EUR/USD) and Euro to Indian Rupee (EUR/INR) exchange rates fell.
RBNZ Inflation Expectation Drags ‘Kiwi’ and ‘Aussie’ Exchange Rates Lower
The Reserve Bank of New Zealand released its Two-Year Inflation Expectation in Tuesday’s antipodean session, which boded badly for both the ‘Aussie’ and the ‘Kiwi’ commodity currencies.
The RBNZ lowered its first quarter two-year forecast from 2.1% to 1.8%.
Economist Jane Turner commented on the situation, saying: ‘With medium-term inflation expectations currently below the mid-point of the RBNZ target band, the RBNZ is likely to become more sensitive to any further downside surprises in inflation and inflation indicators.’
‘The next CPI [Consumer Price Index] reading (in April) will be a key event for the RBNZ. We continue to expect the RBNZ will leave the OCR [official cash rate] on hold for the “foreseeable” future, although weaker inflation expectations slightly increase the near-term risk of an OCR cut.’
Meanwhile, the German economy performed favourably in the fourth quarter when the final Gross Domestic Product (GDP) reading recorded seasonally adjusted 1.4% growth on a year-on-year basis. In addition, German Exports registered above forecast 1.3% growth in Q4.
Economist Andreas Rees stated: ‘Powerful trickle-down effects from a lower oil price and a weaker Euro exchange rate continued to lift the German economy. It is hard not to be reasonably optimistic in Germany these days.’
BoE, Federal Reserve and ECB Speeches to Influence EUR/GBP, EUR/USD GBP/USD
However, Tuesday’s trading will be dominated by central bank action, which is likely to cause major market swings. First up will be Bank of England (BoE) Governor Mark Carney testifying to the Commons Treasury and Committee.
BoE policymaker Kristin Forbes gave a speech on Monday in which she suggested the central bank may have to hike rates in the near future to avoid financial instability occurring.
Forbes stated: ‘If economic growth continues at or above trend, the financial system continues to heal, and the cost of borrowing in the UK remains near zero, these risks to the financial system could build.’
After Carney’s statements, European Central Bank (ECB) President Mario Draghi will speak in Frankfurt and it is likely he will touch upon the unfolding Greek austerity situation.
However, perhaps the most eagerly anticipated item on the agenda today will come in the form of Federal Reserve Chairwoman Janet Yellen testifying to the Sentate Bank panel in Washington.
Of all major central bankers, Yellen has remained calm and stuck to her guidance tighter than a spandex dress on a ballet dancer. While BoE Governor Mark Carney gained himself a reputation as an ‘unreliable boyfriend’ for housing a different rate hike opinion every month, Yellen has been consistent.
However, the Fed’s recent meeting minutes saw policymakers suggest that a period of lower interest rates would be favourable. Previously, the board stated it would be ‘patient’ before moving to hike rates.
Yellen will be under close scrutiny on Tuesday and it’s highly likely the US Dollar to Euro (USD/EUR) and US Dollar to British Pound (EUR/GBP) exchange rates will experience massive movement as a result of central bank statements.
Meanwhile, the Indian Rupee fell to a five-day low versus the US Dollar (INR/USD) as investors await Indian Economic Surveys, Railway Budgets and Union Budget figures later in the week.
However, some economists suggest the Indian Rupee will continue to fall against other majors as companies increase their US Dollar purchases. In addition, Yellen’s comments will also impact the INR/USD exchange rate.
Euro Exchange Rate Forecast: EUR/AUD, EUR/NZD, EUR/GBP, EUR/USD, EUR/INR
The Euro exchange rate could be in for hefty fluctuations this week with German Unemployment Change and Unemployment Rate stats due for publication on Thursday.
Thursday will also see the release of UK Gross Domestic Product figures, which are forecast to remain at 2.7% on the year in Q4.
Meanwhile, the US Dollar could swing significantly with US Consumer Price Index (CPI) and Durable Goods Orders published during Thursday’s trading. If Yellen makes any comment on inflation in her testimonials, US inflation stats are likely to be scrutinised.
The Euro to Australian Dollar (EUR/AUD) exchange rate is trading in the region of 1.4583. The Euro to New Zealand Dollar (EUR/NZD) exchange rate hovers at 1.5186. The Euro to US Dollar (EUR/USD) exchange rate is residing at 1.1303. The Euro to British Pound (EUR/GBP) exchange rate is fluctuating at around 0.7320. The Euro to Indian Rupee (EUR/INR) exchange rate is trending in the region of 70.4330.