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Euro Forecast: EUR USD Exchange Rate Climbs as German IFO Data Impresses

long term Pound Euro forecast

  • EUR USD Exchange Rate Rises – German data helps Euro advance.
  • December Fed Rate Hike Ahead? – Rising bets continue driving demand for US Dollar.
  • ECB Monetary Policy – Analysts predict further easing by the end of 2016.
  • Euro US Dollar Forecast to Drop to $1.05 – Analyst predict this level by 2017.

The EUR USD exchange rate rose this morning following the release of some better-than-expected German IFO data, which helped the Euro recover from yesterday’s slight dip.

Euro (EUR) US Dollar (USD) Exchange Rate Rises Following Upbeat German Data

The Euro (EUR) was bolstered this morning by impressive data on German business confidence, causing the single currency to edge further away from parity with the US Dollar (USD).

The IFO institute’s business climate index jumped from 109.5 to 110.5, beating expectations of 109.6 and reaching its highest level since April 2014, the IFO also reported that business expectations performed better than expected, hitting 106.1 rather than 104.5

The positive data has alleviated investor fears that the Eurozone’s largest economy may have been experiencing a slowdown over the summer.

US Dollar

The US Dollar (USD) continues strengthening as traders bet on a December rate hike from the Federal Reserve after the Fed voted to hold interest rates at 1.5% in September.

The recent rise in bets, which markets currently place at around a 68%, was boosted further yesterday as Chicago Fed President Charles Evans predicted that there would be three interest rate hikes by the end of 2017.

Monday also saw the release of October’s manufacturing PMI in the US, which beat predictions that it would remain unchanged at 51.5 to surge to 53.2, providing further strength for the US Dollar.

ECB May Ease Monetary Policy by the End of 2016

Investors have started to predict that European Central Bank (ECB) President Mario Draghi will seek to ease monetary policy in December, as the weakening of the Euro may provide the economic boost for the Eurozone that Draghi desires.

In its recent meeting the ECB declined to begin tapering its quantitative easing programme early and left the door open to extend it further into 2017 should the bank feel it necessary.

The potential for further easing will be difficult for German banks to digest as they have repeatedly called for an end to the central bank’s bond-buying programme. Banks have struggled to remain profitable in the face of ultra-low interest rates, which is also blamed for playing a role in the Deutsche Bank crisis.

Draghi is likely to be grilled by German lawmakers later today as he speaks in Berlin, with them questioning the need for the continued stimulus from the ECB with Eurozone inflation rising and data improving.

EUR USD Exchange Rate Forecast: Euro May Advance Further if Uptrend in Data Continues

The Euro to US Dollar exchange rate may be able to make some gains this week if German economic data continues impressing, especially if today’s US consumer confidence falls to 101 as predicted.

However rising demand for the US Dollar in light of increasing bets of a Fed rate hike later in the year are likely to weigh on the Euro as Jordan Rochester, a foreign-exchange strategist in London at Nomura Holdings Plc forecasts that the EUR USD exchange rate will sink to $1.05 by the end of 2016.

Current Interbank Exchange Rates

At the time of writing the EUR/USD exchange rate was trending around 1.08 and the USD/EUR exchange rate was trending around 0.91.