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Euro US Dollar (EUR/USD) Exchange Rate Climbs from 15-Month Low

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EUR/USD Exchange Rate Levels, Resumes Upwards Trajectory

The Euro US Dollar (EUR/USD) exchange rate evened out this morning as the US Dollar (USD) began to regain strength; before resuming its upward trajectory. The US Dollar Index suffered its largest one-day loss since May on Wednesday, as the benchmark 10-year US Treasury bond yield fell nearly 3%.

At the time of writing, EUR/USD is trading at $1.1618, up slightly from today’s opening levels.

US Dollar (USD) Muted as Markets Digest Inflation, FOMC Minutes

The US Dollar (USD) is falling against the majority of its peers this morning, although rising bond yields lend support. The ‘Greenback’ finds direction on investors’ response to yesterday’s inflation and Federal Open Market Committee (FOMC) minutes.

Prior to the minutes, USD eased back from a one-year high as Treasury yields fell after US inflation data, despite it showing that prices rose solidly in September, advancing expectations for Federal Reserve tightening.

The FOMC minutes did not dismiss the idea of a November taper: however, while some members are for more aggressive tapering, others cautioned that the standard of substantial further progress toward the goal of maximum employment had not yet been attained.

Nevertheless, all participants agreed that if progress continued broadly as expected, a moderation in the pace of asset purchases may be warranted ‘soon’, commencing in either mid-November or mid-December.

Inflationary concerns somewhat subdued forecasts: some participants suggested that inflation may remain elevated in 2022 if labour and other supply shortages persist.

Fed official Michelle Bowman gave a speech early this morning, warning that

‘Switching off economic activity for such a long period has had lasting consequences, and expectations of a smooth resumption of production, transportation, and business operations may not be met for some time.’

Euro (EUR) Subdued as Risk Appetite Wavers

The Euro (EUR) is trading in a mixed range this morning as a lack of data leaves the single currency exposed to losses.

Weakness in the US Dollar supports Euro upside, as a result of the strong negative correlation between the two currencies – meanwhile, dovish comments from the European Central Bank (ECB) weigh upon trading sentiment.

According to ECB top advisor Andrea Enria, caution is essential as the global economic recovers – Enria drew particular attention to ‘real estate vulnerabilities in some countries’.

Shares and dollar bonds of Chinese real estate firms slid again this morning as investors fretted about a debt crisis: Evergrande Group appeared to make small progress as Qumei Home Furnishings announced that it will buy Evergrande’s 40% stake in their joint venture.

However, other Chinese developers have now warned that they could default, dampening investors’ optimism. According to Zhiwei Zhang, chief economist at Pinpoint Asset Management:

‘The most important policy in the property sector is not monetary policy, but the regulation related to leverage and bank loan supply… I think the government still has the option to loosen those policies… The big question is whether they are willing to do so.’

Euro US Dollar Exchange Rate Forecast: US Data to Drive Exchange Rate Down?

Looking ahead, US jobless claims and September’s Producer Price Index (PPI) this afternoon are in the spotlight. If initial jobless claims fell at the start of the month as predicted, the US Dollar may find some support.

Meanwhile, a lack of EU data throughout the session means EUR trading is likely to be influenced by risk appetite and ongoing political developments.