Euro US Dollar (EUR/USD) Exchange Rate Collapses as ECB Posts Final Rate Hike
The Euro US Dollar (EUR/USD) exchange rate is sinking today, following a dovish hike from the European Central Bank (ECB).
At the time of writing, EUR/USD traded at around US$1.0661, a fall of just under 0.7% from today’s morning rates.
Euro (EUR) Crashes as ECB Signals End of Tightening Cycle
The Euro (EUR) is sliding this afternoon, despite the European Central Bank (ECB) pressing ahead with a 25bps interest rate hike.
In the accompanying forward guidance, the ECB appeared to strike a dovish tone, and indicated that rates were ‘sufficiently restrictive’. Because of this, it seems that the ECB will now be holding rates at their current level in the future.
The ECB stated that:
‘Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.
The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary.’
Additionally, the ECB provided a particularly gloomy set of forecasts, indicating stagnation in the Eurozone’s economy.
Furthermore, the ECB anticipate inflation to remain higher than initially forecast in the near future.
US Dollar (USD) Bolstered by Upbeat Economic Data
The US Dollar (USD) is buoyant today, following the publication of the latest producer price index data.
PPI levels in August surprised significantly to the upside today, printing at 0.7%, above forecasts of a 0.4% increase. This is prompting renewed interest rate hike bets amongst USD investors, as PPI often filters through to the consumer price index.
As this could yield a rise in inflation down the line, the Federal Reserve may need to continue hiking interest rates as they move to bring it back down to their target levels.
Additionally, US retail sales printed above expectations, showing a rise of 0.6% in August. This comes in spite of the Fed’s historically aggressive tightening cycle, intended to slow demand.
Because of this upbeat economic data, the ‘Greenback’ is able to gain ground against some of its peers.
Euro US Dollar Exchange Rate Forecast: ECB Lagarde Speech in Focus
Looking ahead for the Euro, ECB President Christine Lagarde is scheduled to deliver a speech tomorrow morning.
Following the ECB’s surprise rate hike today further remarks reiterating the bank’s desire to cut down inflation could boost EUR. However, if she continues today’s seemingly dovish line of argument, the common currency may struggle to gain traction.
Similarly, continued analysis of today’s rate hike may weigh on the Euro through to the end of the week.
For the US Dollar, the core catalyst of movement is likely to be the latest Michigan consumer sentiment index.
Economists anticipate a minor fall in consumer optimism over September, which could weaken the ‘Greenback’. However, if it surprises to the upside, the US Dollar could strengthen.