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Euro to US Dollar (EUR/USD) Exchange Rate Forecast: ‘Greenback’ Softened by Cautious FOMC Meeting

German Retail Sales Slump Dents Demand for Euro (EUR) Today

The Euro (EUR) has been pushed back onto a more bearish footing on Friday morning following a disappointing slump in December’s German Retail Sales, which declined from 2.4% to 1.5%. Consequently the Euro to US Dollar (EUR/USD) exchange rate has been trending lower in the range of 1.0898.

Earlier…

Ahead of the latest German inflation data the Euro to US Dollar (EUR/USD) exchange rate is on a slight uptrend, boosted by dovish comments from the Federal Open Market Committee (FOMC).

Steady German Consumer Confidence Shored up Euro (EUR) Exchange Rate

On the heels of December’s Federal Open Market Committee (FOMC) policy decision, which saw interest rates finally raised from a multi-year low, pundits were prepared for policymakers to take a less hawkish tone at the first meeting of 2016. Since the start of the year global stock markets have been in a state of turmoil, with some suggesting that fears of the Chinese economic slowdown had been exacerbated by the Fed’s decision to hike. Consequently the US Dollar (USD) softened somewhat on Wednesday in anticipation of the FOMC dialling back expectations for the pace of future monetary tightening.

While some measure of confidence returned to markets yesterday, with oil prices rallying strongly in spite of US crude oil inventories hitting a record high, the Euro (EUR) was nevertheless making gains on the back of a better-than-expected German GfK Consumer Confidence Survey. Despite concerns that downside risks would have dragged on domestic sentiment the measure held steady at 9.4, signalling that confidence in the Eurozone’s powerhouse economy remains robust.

US Dollar Currency News: USD Softened as Dovish FOMC Highlight Slower Pace of Monetary Tightening

Investors were not particularly surprised by the outcome of last night’s FOMC meeting, with interest rates remaining unchanged and policymakers emphasising the need to monitor global economic developments in consideration of future policy. Members of the FOMC had previously indicated that the central bank was unlikely to achieve its projected course of four hikes over the course of 2016, however, muting the impact of this more cautious outlook. Nevertheless, the Euro to US Dollar (EUR/USD) exchange rate strengthened in the aftermath of the announcement as the policy divergence between the Fed and the European Central Bank (ECB) failed to widen further.

Despite German Import Prices contracting in December the marginal improvement on the year, from -3.5% to -3.1%, the single currency has remained on a stronger footing against the ‘Greenback’ today.

EUR/USD Exchange Rate Forecast: Euro to Rally on Improved German Inflation

Later today the Euro is expected to gain support from the latest German Consumer Price Index report, which is forecast to show that baseline inflation strengthened on the year in January from 0.3% to 0.4%. As low levels of inflation within the Eurozone are a key concern to the ECB when considering monetary policy an uptick could prompt policymakers to hold off on further easing for a little longer, in spite of President Mario Draghi’s dovish comments. Any disappointment, though, is likely to drag the common currency down across the board.

Current EUR, USD Exchange Rates

At the time of writing, the Euro to US Dollar (EUR/USD) exchange rate was on an uptrend at 1.0911, while the US Dollar to Euro (USD/EUR) pairing was trending lower around 0.9162.