German Concerns put Dampener on Bailout Optimism Today to Boost the ‘Buck’ (USD) Against the Euro (EUR)
As the chances of a Fed interest rate hike appear to be receding, with some analysts now forecasting the take off to come towards the end of the first quarter of next year, the US Dollar (USD) remains somewhat subdued. However, as the passage of the third Greek bailout hangs in the balance over the next few days, given the opposition it faces from Germany in particular, the common currency (EUR) has entered a cautious decline.
At present the EUR/USD exchange rate is trending in the range of 1.1110.
The ‘Buck’ (USD) has begun to suffer from traders’ concerns over the repercussions of China’s deflation move as the single currency (EUR) remains on a bullish run as approval of the Greek bailout draws nearer.
‘Greenback’ (USD) Rose on Chinese Yuan Devaluation as a Positive Conclusion to Bailout Talks in Greece Bolstered the Common Currency (EUR)
Hawkish comments from Federal Reserve Bank of Atlanta President Dennis Lockhart, suggesting that the Federal Open Market Committee (FOMC) remains on track for a September interest rate rise, shored up the ‘Greenback’ (USD) at the start of the week. Lockhart’s confidence in the strengthening state of the US economy was underlined by the overnight decision of the People’s Bank of China (PBoC) to significantly depreciate the Yuan (CNY). Together this pushed the EUR/USD exchange rate to 1.0972, forcing the Euro (EUR) to cede the gains it had been making throughout that afternoon.
Good news from Athens yesterday, however, helped to overshadow a significantly worse than anticipated ZEW Economic Sentiment Index for Germany, that clocked in at a reduction to 25 rather than the forecast improvement to 31. It was announced that an ‘in principle’ agreement was reached between the Greek government and its creditors, reducing fears that another repayment default might occur on the 20th August and boosting the Euro (EUR) across the board. This strong showing reversed the fortunes of the EUR/USD pairing, which climbed to 1.1076.
Greek Optimism Outweighs Disappointing Eurozone Industrial Production, EUR/USD Exchange Rate Quick to Benefit as ‘Buck’ (USD) takes Tumble
Eurozone Industrial Production figures were not especially positive for the common currency this morning, with the year-on-year number only demonstrating growth of 1.2% instead of 1.7%. Any negative effect this might have had on the EUR/USD exchange rate, however, was neutralised by the continued optimism surrounding news from Greece. In spite of the timescale of the deal’s passing through the various parliamentary obstacles seeming to be slightly in question, traders still continued to favour the common currency, pushing the EUR/USD exchange rate to a monthly high of 1.1152.
Today’s upcoming MBA Mortgage Applications for the US may lead to a rally, with a report of growth likely to further bolster expectations of a September rate hike by the Fed. Ahead of this, though, the ‘Greenback’ continues to be dominated by its rival, with increasing worries of overvaluation possibly beginning to afflict the currency. The prospect of a recovering Chinese economy, which the PBoC no doubt hopes will ultimately result from their devaluation of the Yuan, could be a concern for the US.
Euro to US Dollar (EUR/USD) Exchange Rate Forecast: Common Currency Hopes for Smooth Path to Bailout Approval against German Caginess
A more substantial rally could be in store for the US Dollar on Thursday, with the release of Advance Retail Sales and employment data. Any possible signs of weakness in the domestic economy are likely to spook pundits further though, which would have undoubtedly positive ramifications for the EUR/USD exchange rate.
With German and Finnish ministers continuing to make clear their reticence over the agreement on Greece’s third bailout as it currently stands the passage of the proposal may face a holdup in the coming days. As time is tight prior to the deadline for the European Central Bank (ECB) repayment, any snags could seriously damage the current hawkishness of the Euro. Consumer Price Indexes and GDP reports due in the remainder of the week, however, have the potential to strengthen the currency further.
Current EUR, USD Exchange Rates
Presently the Euro to US Dollar (EUR/USD) pairing is seeing strong positive movement at 1.1148, with the US Dollar to Euro (USD/EUR) exchange rate in a downtrend around 0.6414.