The Euro to US Dollar (EUR/USD) exchange rate gave up the gains made earlier in Tuesday’s session as economic data out eased concerns that the world’s largest economy is experiencing a slowdown. Comments made by a Fed policy maker suggesting that interest rates should rise also supported the ‘Greenback’.
The Euro to US Dollar exchange rate softened to a session low of 1.0888
Earlier in the session the Euro had been trading higher against the US Dollar due to the release of better than forecast Purchasing Manger Index reports out of Germany and the wider 19-member Eurozone.
As the session progressed, data releases out of the USA saw the ‘Greenback’ pare its earlier losses against a number of its most traded peers.
The currency strengthened after the Federal Reserve published the latest US inflation figures.
According to the report, inflation in the USA rose by 0.2% in February to drag the overall annual rate out of negative territory. The report showed that fuel prices rose by 2.4% to mark the biggest price rise since December 2013 and was the first rise recorded in seven months.
Core inflation, which excludes food and energy costs rose by 0.2% in February after a similar gain in January. Core inflation was up 1.7% from the same month last year, the largest increase since November.
The rise in core inflation increased speculation that the Federal Reserve could hike interest rates in June.
‘Core inflation of 1.7% for a single month won’t push the Fed to act, but a continuing trend to higher prices might. That is potentially even more important for Fed policy now, given the change in the statement last week to say that inflation was expected to remain close to current low levels. Any further move higher could support the case FOMC members wanting to start hiking interest rates earlier,’ said CIBC economist Andrew Grantham.
A separate report released by the Washington based Commerce Department showed that new home sales soared by 7.8% to a seasonally adjusted figure of 539,000 units in February. The figure was the strongest seen since 2008 and smashed forecasts for a fall to 465,000.
Fed Should Hike Interest Rates Says San Francisco Fed President John Williams
The US Dollar also received strong support from comments made by San Francisco Fed President John Williams who said that the US central bank should hike interest rates sooner rather than later.
‘When you’re driving towards a stoplight, you don’t keep your foot on the accelerator; you ease off so you’re ready to stop at your target. Otherwise, you slam on the brakes and probably wind up in the middle of the intersection. The fact that I am saying we should raise interest rates means the US economy has domestic momentum,’ Williams said.
The US Dollar could strengthen further on Wednesday if the latest MBA Mortgage Applications data shows a strong rally from the previous week.
Also of interest will be Durable Goods Orders.
