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Euro to US Dollar (EUR/USD) Exchange Rate Forecast to Decline amid ECB Easing Speculation

EUR/USD Exchange Rate Predicted to Soften despite Drop in Eurozone Unemployment

The Euro to US Dollar (EUR/USD) exchange rate softened by around -0.2% on Tuesday afternoon.

After recent data showed that Eurozone inflation dropped to -0.2% in February, the single currency has struggled versus its major peers. This is due to increased speculation that the European Central Bank (ECB) will be forced into using aggressive stimulus measures to shore up consumer prices in the 19-nation currency bloc.

The weak core inflation figure ‘pretty much seals the deal on additional monetary easing’ at next week’s meeting, said Teunis Brosens at ING bank. ‘The weakening of core inflation shows the real and present danger that cheap oil will cause low inflation to become ingrained in Eurozone price and wage dynamics. This is especially bad for debt-laden households, businesses and governments in Southern Europe, which will have little scope to ‘inflate away’ their debt burden by increasing nominal wages,’ Brosens said.

Today’s domestic data produced mostly positive results, although ecostats have been overshadowed by predictions of looser monetary policy. Of particular positivity was Eurozone Unemployment which dropped from 10.4% to 10.3% in January despite predictions of no change.

The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.0864.

USD/EUR Gains Today ahead of ISM Manufacturing Data

In recent times the US Dollar has seen marked price swings in response to Euro fluctuation and mixed results from domestic data. A lean towards depreciation, however, can be related to speculation that the Federal Reserve will delay a benchmark interest rate hike thanks to external risks and the global economic slowdown.

‘On balance, I am somewhat less confident than I was before,’ Federal Reserve Bank of New York President William C. Dudley said in remarks prepared for a speech on Tuesday in the Chinese city of Hangzhou. ‘Partly, this reflects my assessment that uncertainty to the outlook has increased and that downside risks have crept up.’

Later today the US Dollar is likely to see increased volatility in response to ISM Manufacturing data for February which is expected to see a slight improvement in the rate of contraction from 48.2 to 48.5.

The Euro to US Dollar (EUR/USD) exchange rate dropped to a low of 1.0854 during Tuesday’s European session.

Euro to US Dollar (EUR/USD) Exchange Rate Forecast: Lautenschlaeger Speech to Provoke Volatility

As explained above, the US ISM Manufacturing report is very likely to cause changes for the Euro to US Dollar (EUR/USD) exchange rate. However, a speech from European Central Bank official Sabine Lautenschlaeger should initiate EUR/USD movement as she is likely to reiterate the point made by other officials that policy easing is required to buoy inflationary growth.

If Lautenschlaeger proves to deliver a dovish speech, the resultant Euro weakness will likely provide US Dollar tailwinds irrespective of domestic data results, unless there is a massive surprise in the ISM Manufacturing report.

The Euro to US Dollar (EUR/USD) exchange rate reached a high of 1.0894 during Tuesday’s European session.