Dovish FOMC Comments Failed to Shore up EUR/USD Conversion Rate as Euro Fell out of Favour with Traders
An increasing number of Federal Open Market Committee (FOMC) board members have been putting the brakes on speculation of an imminent take-off for US interest rates over the last week after the extent of the Chinese slowdown began to take its toll on the global economy. While New York Federal Reserve President William Dudley, previously one of the more vocal supporters of a September rate hike, made dovish comments mid-week regarding the less ‘compelling’ current conditions, the sentiment was generally echoed over the weekend at the Fed’s annual Jackson Hole retreat. Vice Chairman Stanley Fischer was a little more non-committal in eliminating the possibility, however, he did draw attention to the fact that domestic inflation remains well below the 2% goal of the Fed.
Although the German Consumer Price Index held steady at 0.2% on Friday, implying that inflation rates in the Eurozone are not regressing as had been feared, the Euro (EUR) was nevertheless weighed down by continued trader concern. With the interim Greek government now sworn in, the Hellenic nation is likely to return to the forefront of attention, as the first post-bailout creditor review in October draws closer and the prospect of former Prime Minister Alexis Tsipras easily regaining power seems increasingly limited.
Common Currency (EUR) Held Back on Mixed Eurozone Data as Today’s US Manufacturing PMI Weakens the ‘Greenback’ (USD)
Some of those worries were at least temporarily assuaged by yesterday’s release of the annual July Retail Sales figure for Germany, which came in with a decidedly smaller contraction than forecast at 3.3% rather than 1.7%. Also of support to the common currency was the Eurozone Consumer Price Index, as it held at the previous month’s rate and didn’t fall back as had been feared.
German unemployment data this morning proved strong, with the number of unemployed decreasing by a larger margin than had been anticipated, initially boosting the EUR/USD exchange rate to a peak of 1.1323. However, this was rapidly overshadowed by a generally unimpressive round of Eurozone Manufacturing PMIs, with growth in Germany outweighed by marked declines in other member nations such as France and Greece. To cap off a day of variable results, this afternoon prompted a turnaround on an improved unemployment rate for the Eurozone, which reached its lowest level in three years at 10.9%.
While US Construction Spending was found to have remained stable in July, a bad opening to the US stock markets coupled with a disappointing Manufacturing PMI today to soften the ‘Greenback’. Falling further than expected, the US ISM Manufacturing gauge posted at 51.1 to lend increased support to arguments for the Fed to hold off on fiscal tightening for the near future.
EUR/USD Exchange Rate Forecast: Outlook of Euro Dependent on Upcoming ECB Rate Decision
Eurozone Retail Sales on Thursday will provide another indication of the present economic state of the commodity bloc, but the impact of this data stands to be rapidly eclipsed by the afternoon’s European Central Bank (ECB) Rate Decision. Should policymakers elect to enact fresh loosening measures the appeal of the Euro to investors is likely to decrease, to the detriment of the EUR/USD pairing.
The same day will see the release of the US Non-Manufacturing PMI figure, with another worse than anticipated result having the potential to drive up the EUR/USD exchange rate on renewed ‘Buck’ weakness. A reassuring result, however, could boost the US Dollar back to more bullish form, particularly if there is further support from domestic unemployment figures.
Current EUR, USD Exchange Rates
At time of writing the Euro to US Dollar (EUR/USD) exchange rate is on an uptrend in the range of 1.1253, while the US Dollar to Euro (USD/EUR) pairing is bearish at 0.8883.