US Dollar (USD) Downtrends Today after December Retail Sales Disappoint
While the latest University of Michigan Confidence Index revealed an uptick in consumer confidence this was contrasted by a contraction in US Advance Retail Sales for December. As such the US Dollar (USD) has remained in mixed spirits on Friday afternoon, allowing the Euro to US Dollar (EUR/USD) exchange rate to continue making gains in the region of 1.0947.
With the European Central Bank (ECB) clearly divided over the course of future monetary policy the Euro (EUR) has continued to advance on Friday morning, as the US Dollar (USD) turns bearish ahead of the latest Advance Retail Sales figure.
US Dollar (USD) Dented as FOMC Suggests Slower Pace of Monetary Tightening in 2016
As members of the Federal Open Market Committee (FOMC) have recently suggested that the central bank is unlikely to deliver its previously predicted pace of interest rate hikes in the coming year the US Dollar (USD) softened somewhat. President of the St Louis Federal Reserve James Bullard reiterated the expectation that the persistent declines in oil prices could hamper domestic inflationary pressure from reaching its 2% target in the forecast timeline. As Bullard is generally considered to be one of the more hawkish FOMC policymakers this caution saw the ‘Greenback’ pushed off its bullish run.
While the prospect of a less imminent Fed rate hike helped to bolster the Euro (EUR) it was also supported by Germany’s annual GDP for 2015 showing an uptick from 1.6% to 1.7%. With the Eurozone’s powerhouse economy apparently shaking off much of the downside influence of the global slowdown and more local concerns such as the Volkswagen emissions scandal, this saw a fresh surge of confidence in the single currency.
Dovish ECB Fails to Drag on Euro (EUR) Exchange Rate as Policymaker Divide Widens
However, it has not all been positive for the Euro as traders continue to speculate on the likelihood of the European Central Bank (ECB) expanding its quantitative easing program over the coming months. While the December meeting minutes of the ECB point towards an increasing divide amongst policymakers, the central bank reiterated the downside risks to its inflation rate target, suggesting that further monetary loosening could be necessitated in the future. Any action is unlikely to be unanimous, though, as some members indicated a desire to hold off on further monetary stimulus, allowing the single currency to return to an uptrend.
With Chinese New Yuan Loans declining by more than expected in December, safe-haven demand has helped to shore up the common currency further on Friday morning.
EUR/USD Exchange Rate Forecast: US Dollar Predicted to Weaken with Contraction in Advance Retail Sales
This afternoon’s US Advance Retail Sales and University of Michigan Confidence Index may prompt the US Dollar to trend lower, as consumer demand in December is expected to have weakened on the month from 0.2% to -0.1%. Given the importance of the Christmas retail period, a decline in consumption could raise questions over the current robustness of the world’s largest economy. Any weakening in consumer sentiment is equally likely to dent the odds of a nearer-term Fed rate hike further.
Current EUR, USD Exchange Rates
At the time of writing, the Euro to US Dollar (EUR/USD) exchange rate was making gains in the region of 1.0906, while the US Dollar to Euro (USD/EUR) pairing was slumped around 0.9167.