Optimistic Federal Reserve Outlook Triggers EUR/USD Exchange Rate Losses
The Euro (EUR) has fallen by -0.3% against the US Dollar (USD) today, putting the single currency near a one-week low.
This depreciation has been caused by last night’s Federal Reserve interest rate decision, which resulted in a rate hike from 2% to 2.25%.
The rate hike came alongside upgraded Fed growth forecasts for 2018 and 2019 and hints at three interest rate hikes next year.
Because the US Dollar rose across the board after the Fed meeting, the US currency has been in high demand and traders have been less interested in the Euro.
EUR/USD Exchange Rate Drops on Lower Eurozone Confidence Levels
On the homefront, the Euro to US Dollar exchange rate (EUR/USD) has also fallen today because of the latest Eurozone confidence data.
Covering a range of confidence measures in September, the figures have shown static business confidence but a worsening of consumer confidence levels.
In the latter case, the confirmed shift from -1.9 points to -2.9 makes the 9th consecutive month of falling consumer sentiment.
Capital Economic Senior European Economist Jack Allen said of the data:
‘Consistent with the message from the hard data and the PMI surveys, the EC survey showed that the slowdown has been driven by the industrial sector, presumably reflecting the impact of a stronger currency and weaker growth in the currency union’s major trading partners.’
Signs of Italian Government Infighting Limit Lower Euro Demand Today
Another factor that has reduced demand for the Euro (EUR) today has been the news that the Italian government could be in disagreement about upcoming budget plans.
The coalition government, which was formed in May this year, has reportedly hit a sticking point when it comes to future Italian spending measures.
Alongside lingering concerns that the budget might exceed EU limits, the perception that government parties might be at odds has rattled Euro traders today.
Euro to US Dollar Exchange Rate Forecast: Will EUR/USD Rise on Draghi Speech?
The Euro (EUR) might rise against the US Dollar (USD) this afternoon, when European Central Bank (ECB) President Mario Draghi is due to give a speech.
Mr Draghi will be speaking at theannual conference of the European Systemic Risk Board and could raise support for the Euro if he hints at a 2019 interest rate hike.
In the ideal scenario, Mr Draghi will indicate that higher interest rates could come early next year – such an outlook could cause a EUR/USD exchange rate rally.
Despite the potential for a EUR/USD exchange rate rise, however, the Euro remains at risk of additional losses against the US Dollar if today’s US data matches forecasts.
Durable goods orders in August are tipped to have risen, while GDP growth in Q2 is expected to be confirmed higher.
These data releases could ensure further USD/EUR exchange rate gains if they match up with expectations, even if Mr Draghi does reveal an optimistic outlook.