Euro to US Dollar Exchange Rate Plummets as Markets Digest Fed and ECB Developments
Due to market bullishness towards the latest Federal Reserve policy decision and bearishness about the latest European Central Bank (ECB) policy decision, the Euro to US Dollar (EUR/USD) exchange rate has plummeted this week.
After opening this week at the level of 1.1768, EUR/USD spent most of the week trending in a relatively tight range.
However, after touching a high of 1.1829 during the ECB decision, EUR/USD plummeted after the decision and hit a June low of 1.1546 on Friday morning.
EUR/USD climbed away from its worst levels on Friday morning as investors continued to digest the European Central Bank’s tone.
The bank was not particularly dovish but did note that Eurozone growth was slowing, as well as confirm that there would be no Eurozone rate hike for over a year.
Euro (EUR) Exchange Rates Tumble as ECB Outlook Becomes More Cautious
Thursday’s European Central Bank (ECB) saw little in the way of big surprises, but combined with the Federal Reserve’s hawkish tone earlier in the week it was enough to leave the US Dollar far more appealing than the Euro.
As markets hoped, the ECB confirmed that it was planning to completely unwind its aggressive quantitative easing (QE) programme by the end of December 2018.
However, many more hawkish investors were disappointed by comments from ECB President Mario Draghi, suggesting that there would be no action on Eurozone interest rates until mid-2019 at the earliest.
The bank also lowered its Eurozone growth forecasts, amid the quicker than expected economic activity slowdown since the beginning of the year.
Of course, global trade uncertainties remained a downside risk to bank officials too. These uncertainties made it easy for the US Dollar to gain against a weakened Euro.
US Dollar (USD) Exchange Rates Strengthen as Federal Reserve Hawkishness Rises
The US Dollar didn’t see much reaction to the Federal Reserve’s June policy decision on Wednesday, as investors anticipated Thursday’s European Central Bank (ECB) decision before making any big movements.
Once the ECB decision concluded, the US Dollar surged on this week’s Federal Reserve hawkishness.
The Federal Reserve hiked US interest rates on Wednesday. While this was already largely priced into the US Dollar, the Fed also indicated it could hike US interest rates twice more before the year is up.
As this was the strongest sign yet that the Fed was projecting four total interest rate hikes for 2018, the US Dollar benefitted.
Markets now perceive the monetary policy divergence between the Fed and the ECB will deepen even further, with the ECB not expected to hike rates until next year.
On top of Central Bank news, the US Dollar also benefitted from surprisingly strong US retail sales results on Thursday.
Euro to US Dollar (EUR/USD) Forecast: Central Bank Speculation and PMI Projections in Focus
Next week’s Eurozone and US economic calendars will be a little quieter, so Euro to US Dollar (EUR/USD) exchange rate traders are likely to continue to focus on recent Central Bank developments and any changes in global trade.
The US government’s protectionist rhetoric on trade has caused notable uncertainty in both the US and the Eurozone, though it currently has a greater effect on Eurozone confidence.
If the US softens its trade stances at all, the Euro could recover some losses against the US Dollar.
Of course, stronger-than-forecast Eurozone data could have that effect on EUR/USD too.
Eurozone consumer confidence survey data from June will be published on Thursday as well as French business confidence. This will be followed on Friday by Markit’s Eurozone PMI projections for June.
As for US data, house sales and PMI projections stats could influence the Euro to US Dollar (EUR/USD) exchange rate next week.