Eurozone Growth Hits 10-Year High, EUR Exchange Rates Bolstered
The Euro US Dollar (EUR/USD) exchange rate climbed on Tuesday, bolstered by news that annual growth in the bloc hit a 10-year high.
According to official figures from Eurostat, the Eurozone’s economy grew by 2.5% in 2017, the highest reading since 2007’s growth rate of 3%.
This seemed to point towards success for the European Central Bank’s (ECB) quantitative easing program.
But it also suggests that the Eurozone’s economy has broken out of its prolonged debt crisis.
Balraj Sroya of Foenix Partners shared his optimism on these readings, stating:
‘The Eurozone over the last decade has seen a lot of uncertainty with the recession hitting the bloc and the Greek debt crisis. However, with strong GDP and other economic indicator figures the Eurozone has put all that behind them and is looking stronger and more stable than ever, despite Brexit and the ongoing uncertainty surrounding it’.
This news painted an optimistic picture of the economic future of the bloc, pushing the EUR/USD exchange rate back into the single currency’s favour.
US Dollar (USD) Exchange Rates Slip as US Treasury Yields Soften
The US Dollar’s rally was cut short on Tuesday as markets reacted to a pull-back in the price of US Treasury yields.
US bond yields recently pushed above 2.70% (the highest reading since April 2014), news that helped prompt the ‘Greenback’s’ recent rally.
This rise proved short-lived, however, with equity markets remaining in the red and investors growing increasingly anxious about the looming US FOMC rate decision.
In other news; investors will be keen to assess the US consumer confidence readings for January, which are due later today, as well as US President Donald Trump’s first State of the Union address – a speech expected to be geared towards unification, American values and patriotism.
US consumer confidence is currently expected to climb from 122.1 to 123.0, bolstered by the recent sweeping tax reform measures.
It’s unlikely that this will be enough to push the EUR/USD exchange rate back into the US Dollar’s favour, however, particularly with the US FOMC decision liable to cause volatility.
US FOMC Rate Decision in Spotlight – EUR/USD Exchange Rate Forecast
Janet Yellen, Chairman of the US Federal Reserve, is due to begin her last FOMC rate meeting tomorrow before she is replaced in February by successor Jerome Powell.
Markets don’t currently expect a rate hike to occur at this meeting, though further rate hikes are indeed expected later in the year.
With no rate hike expected, markets will look to the accompanying statement for any indications on future monetary policy plans. If the central bank has an optimistic outlook then the EUR/USD exchange rate could come under renewed pressure.
A dovish, cautious outlook, however, would have the opposite effect.