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Euro to US Dollar Exchange Rate Softer as Inflation Fears Limit EUR Appeal

While the Euro initially advanced on its peers following the publication of surprisingly upbeat German business sentiment data, the fact that inflation in the Eurozone remained below the European Central Bank’s target for another month kept pressure on the common currency.

The Euro softened against its US counterpart as investors bet that the ECB will announce additional easing measures when it convenes next week.

Also contributing to the Euro’s weakness were comments issued by ECB Executive Board member Peter Praet.

Praet intimated that the central bank is prepared to use whatever means necessary in order to restore price stability to the currency bloc.

ECB President Mario Draghi also recently stated that while he doesn’t believe the Eurozone is experiencing deflation, he and his fellow policy makers are aware of the risks facing the currency bloc. In Draghi’s own words, ‘The Governing Council is willing and ready to take any action in case these risks were to gain strength.’

In the view of one London-based currency strategist; “The timing of the statement clearly suggests they’re discussing policy options. If we see inflation falling further, further easing is very likely.”

Today’s inflation report showed that the Eurozone’s consumer price index advanced by 0.8 per cent in January, slightly more than the 0.7 per cent estimate but still under 1 per cent.

However, EUR/USD losses were limited as the appeal of the US Dollar was lessened by disappointing US news.

The Chicago Fed Nat activity index came in at -0.39 in January rather than the -0.20 forecast while the Dallas Fed manufacturing activity measure came in at 0.3 in February, down from 3.8 per cent in February and considerably less than the reading of 0.3 forecast by economists.

The Euro was able to trim declines against the Pound however as recent data added to speculation that the pace of economic recovery in the UK is slowing.

Tomorrow EUR/USD movement will be triggered by final German growth figures. The US house price index and consumer confidence report are also likely to have a notable impact on the pairing.

Euro (EUR) Exchange Rates

[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate , 
Euro,,US Dollar,1.3726,
Euro,,British Pound,0.8252,
Euro,,Australian Dollar,1.5214,
Euro,,New Zealand Dollar,1.6593,
Euro,,Canadian Dollar,1.5192,

As of 16:40 GMT