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Euro to US Dollar (EUR/USD) Exchange Rate Forecast to Dive after China Cuts Rates

UPDATE

The Euro to US Dollar (EUR/USD) exchange rate softened by around -0.6% on Friday afternoon.

After a surprise announcement from Beijing that the benchmark interest rate has been cut by a further 0.25 percentage points, the Euro declined versus its major peers. This is due to the fact that this could prompt the ECB into taking action ahead of December as discussed yesterday.

The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1017.

Earlier…

EUR/USD Exchange Rate Edged Higher after Eurozone PMIs Bettered Estimates

The Euro to US Dollar (EUR/USD) exchange rate advanced by around 0.4% on Friday morning.

After European Central Bank (ECB) President Mario Draghi made a dovish speech following the decision to hold the cash rate and keep the asset purchase program unchanged, the shared currency plummeted across the board. Draghi suggested that policymakers were likely to review the possibility of expanding the quantitative easing in December. He also stated that policymakers discussed in-depth the potential for cutting the benchmark interest rate if necessary.

On Friday, however, the single currency halted losses in response to better-than-expected domestic data results. It is worth noting, however, that the common currency is still holding a comparatively weak position versus its major peers. French and Eurozone Manufacturing, Services and Composite PMI’s for October bettered the respective median market forecasts. In addition, the German Services and Composite PMIs eclipsed expectations, although the German Manufacturing PMI dropped slightly below the market consensus.

The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1121.

USD/EUR Conversion Rate Predicted to Hold Losses ahead of US Manufacturing PMI

The US Dollar rallied yesterday in response to the diving Euro thanks to negative EUR/USD correlation. However, mixed results from domestic data clouded trader optimism amid speculation that the Federal Reserve will look to delay a benchmark rate hike into 2016. ‘The market sentiment has moved tremendously since September,’ said Philip Marey, a senior markets economist at Rabobank International. ‘At the moment, the market perception is that it’s (US rate hike) going to happen next year, and that’s why Treasury yields are so low.’

On Friday morning the US asset declined versus the majority of its major peers after positive European data saw the Euro make a fractional recovery. Later today, the US Manufacturing PMI for October is likely to provoke US Dollar volatility, although the result is expected to show a drop from previous growth.

The Euro to US Dollar (EUR/USD) exchange rate dropped to a low of 1.1074 during Friday’s European session.

Euro to US Dollar (EUR/USD) Exchange Rate Forecast to Decline in the Long-Term

Although the Euro has made a fractional recovery on Friday, the shared currency is predicted to decline in the long-term with the prospect of future ECB easing on the cards. Later on Friday we could see a change to the EUR/USD exchange rate upon the publication of the US Manufacturing PMI.

Next week, there will be several influential domestic data publications with the potential to provoke changes for the Euro to US Dollar (EUR/USD) exchange rate. The Federal Reserve interest rate decision is likely to dominate market focus although very few economists expect any changes to occur at this juncture.

In terms of European economic data next week, Friday’s Eurozone inflation data will be of significance. This is because the lack of price pressures has been the primary pitfall that has provoked serious discussion between ECB policymakers regarding the expansion of policy stimulus.

The Euro to US Dollar (EUR/USD) exchange rate climbed to a high of 1.1140 during Friday’s European session.