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Euro to US Dollar (EUR/USD) Exchange Rate Forecast: Federal Reserve’s Bullard Suggests ‘Substantial’ Risk if Rates Remain Low

The Euro to US Dollar (EUR/USD) exchange rate gained in Thursday’s European trading after German GfK Consumer Confidence rose from 9.7 to 10.0 in April and US Durable Goods Orders contracted by -1.4% in February.

However, Federal Reserve official James Bullard is currently speaking and has stated that the risks for keeping interest rates at 0.25% ‘may be substantial’.

Earlier… The Euro to US Dollar (EUR/USD) exchange rate began Wednesday’s European trading rather bullishly after the German IFO Business Climate figure grew to 107.9 in March from 106.8 in February and German IFO Expectations hit 103.9 from 102.5; however US Durable Goods Orders could influence USD/EUR later in the session.

UPDATE: US Durable Goods Orders printed out of line with forecasts–instead of recording 0.2% growth in February, the ecostat recorded a -1.4% contraction.

Federal Reserve Rate Hike Speculation Plays on US Dollar (USD) Exchange Rate

The US economy has been strengthening in recent months and economists have suggested that the Federal Reserve may be getting extremely close to hiking interest rates. However, there seems to be a lot of debate on whether a June interest rate hike will or won’t occur.

Federal Reserve policymaker James Bullard has recently suggested that the Fed’s 0.25% borrowing costs needed to be adjusted to a more appropriate benchmark.

Bullard stated: ‘Zero is no longer the appropriate interest rate for the US economy.’

However, Bullard also commented on potential market reactions to higher interest rates, suggesting that the fallout could be ‘violent’.

Bullard said: ‘We’re talking so much about it that I hope it’d be anticlimactic when we get there. But there is this issue about the market expectations of a rate path being different from the committee’s expectations.’

‘So if we get all the way to the day we actually make a decision and we end up surprising the markets that day, there’s going to be reconciliation on that day and that could be violent.’

When asked what a violent reaction was likely to be, Bullard suggested that market expectations and Federal Open Market Committee (FOMC) ideals are often out of alignment and therefore a more aggressive reaction takes place in the market.

Euro to US Dollar (EUR/USD) Exchange Rate Forecast

Meanwhile, the Euro to US Dollar (EUR/USD) exchange rate has fluctuated in recent months as Greece attempts to renegotiate its austerity deal with creditors.

Officials in Brussels are expected to discuss the Greece situation today and could discuss the future of the nation’s debt package. However, time is running out and Deutsche Bank has forecast Greece will be out of money by April 9th.

Deutsche Bank stated: ‘Deposit flight has risen to about €400 million on March 18, the highest since the February 20 agreement. The risk of capital controls continues to rise.’

The US Dollar to Euro (USD/EUR) exchange rate is likely to experience movement later in the session with the release of US Durable Goods Orders and MBA Mortgage Applications.

The US Dollar to Euro (USD/EUR) exchange rate is trading at 0.9133; the Euro to US Dollar (EUR/USD) exchange rate is trending in the region of 1.0952.