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Euro to US Dollar (EUR/USD) Exchange Rate Tumbles Sharply, Currency Pair Forecast To Reach Parity

The Euro to US Dollar (EUR/USD) exchange rate continued its sharp declines on Friday to weaken to a new 12-year low as concerns over the European Central Banks (ECB) quantitative easing programme increased.

The Euro to US Dollar (EUR/USD) exchange rate hit a session low of 1.0481

The ‘Greenback’ advanced despite posting softer than forecast domestic US data. According to the Washington based Department of Labour, producer prices fell by -0.5% last month, a figure that beat expectations for a gain of 0.3%. The unexpected drop adds to the preceding month’s decline of -0.8%. In the 12 months through February, producer prices fell 0.6 percent, the first decline since the series was revamped in 2009.

‘The underlying message appears to be that pipeline inflationary pressures remain quite weak, even as energy prices have stabilised and gasoline prices have drifted modestly higher,’ said an economist from TD Securities.

Economists also shrugged off the release of data, which showed that consumer confidence declined in March to the lowest level in four months, as optimism about the US economy was tempered by weaker income expectations and a rally in gas prices.

According to the University of Michigan, its consumer sentiment index fell from February’s figure of 95.4 to 91.2. Economics had been forecasting for a reading of 95.5.

Confidence eased in as energy prices rose after gas prices increased from a six-year low and as wage growth remained limited.

‘One of the things that were driving it was just gasoline prices. The general view on the US consumer is going to be mainly driven by the improvement in the labour market,’ said Drew Matus, an economist at UBS Securities LLC in New York.

The Euro fell sharply as market attention shifted to next week’s Federal Reserve policy meeting. Any hint that policy makers are edging closer to raising interest rates will send the US Dollar even higher and could cause the EUR/USD to reach parity.

‘This was a fairly sudden move up in the US Dollar… the data are conflicting with PPI soft but the University of Michigan inflation data is relatively strong. However, this is not so much about the data, rather the Fed and what to expect from next week’s meetings,’ said Camilla Sutton, chief currency strategist at Scotia Capital.

The Federal Reserve policy meeting will take place on March 17 and 18.