The Euro to US Dollar (EUR/USD) exchange rate climbed through the second half of the week after Federal Reserve decisions upset investors and prevented the ‘Greenback’ from gaining strength.
Global Markets Kneejerk away from USD after Disappointing US Interest Rate Forecasts
After a long period of strength against the Euro (EUR), the US Dollar (USD) suffered a considerable blow on Wednesday evening, allowing the pair to reach its highest point since the 14th of October 2015 yesterday afternoon.
The pairing began a steady downtrend today as investors continue to adjust, down around -0.4% at around 1.1271 from the morning’s opening levels of 1.1313.
Positive Eurozone CPI data released yesterday morning is likely to have given the Euro additional strength against the western giant. Core CPI and month-on-month CPI both released at higher-than-forecast numbers of 0.8% and 0.2% respectively. February’s month-on-month data was able to climb quite considerably over January’s -1.4%, possibly injecting a little more confidence into the Euro.
Unfortunately inflation year-on-year from February had contracted at the expected -0.2%. While this was expected, the larger data release is more likely to have weighed the Euro down.
The primary cause for the pair’s movement however was the Federal Reserve’s Wednesday announcements and decisions. While the US central bank announced that the key interest rate would be held at 0.50% as analysts expected, they also halved the forecast of future hike rates throughout 2016.
Weakness and Risks in Global Economy Blamed for Federal Reserve Decision
Initially predicted to be raising the interest rate by a bullish 100 basis points throughout the year after December’s initial hike from 0.25% to 0.50%, the Fed announced on Wednesday that they were no longer targeting such a large movement this year, instead aiming for a slightly more dovish 50 basis points interest rate increase.
The central bank’s Chair Janet Yellen cited ‘global economic and financial developments’ as reasons for the chopped forecast, mentioning that declines in energy prices such as oil have harmed the global economy and by extension the United States’ ability to hike up interest rates.
While the US economy is still expanding at a gradual rate and the interest rate is likely to increase again this year, hungry investors were eager for more and left the ‘Buck’ in favour of riskier pastures. Global risk-sentiment shot up as a result with commodities and commodity bloc currencies experiencing sudden growth.
The weakened Euro also felt the influence of the Dollar’s fall heavily as the EUR/USD pair climbed from 1.1073 to 1.1337 throughout Wednesday and Thursday.
Euro to US Dollar (EUR/USD) Exchange Rate Forecast: Euro Likely to Maintain Strength Against Reeling ‘Greenback’
Investors continue to adjust their positions after Wednesday’s announcements. As bullish movement begins to slow this morning the pair is well above the week’s opening levels of 1.1149.
Next week seems to be a comparatively quiet one for the US economy, though Home Sales data due on Monday and Goods data due next Thursday seem likely to impact the ‘Buck’, possibly helping the weakened currency to regain a little good favour after this week’s blow if data proves to be positive.
The Eurozone, on the other hand, has a large collection of Markit PMI data releases set for next Thursday for both Germany and the Eurozone in general, and all of them combined are likely to affect the Euro’s strength in some way or another as the currency still settles from last week’s European Central Bank announcements.
The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1271 while the US Dollar to Euro (USD/EUR) exchange rate trends in the region of 0.8870.