Euro US Dollar (EUR/USD) Exchange Rate Plummets amid Hotter-Than-Forecast US PPI
The Euro US Dollar (EUR/USD) exchange rate is dropping today, following hotter-than-expected US PPI data.
At the time of writing, EUR/USD is trading at around US$1.0892, a fall of just over 0.5% from today’s opening rates.
US Dollar (USD) Soars as PPI Prints Above Forecasts
The US Dollar (USD) is rallying today, following the release of the latest producer price index for February.
On a monthly basis, PPI printed above forecasts and accelerated to 0.6%. As this can filter through to consumer price inflation, this is sparking bets that the Federal Reserve may be able to keep interest rates unchanged for longer than initially thought.
Chris Gaffney, President of World Markets at EverBank, commented:
‘I expect to see continued pressure with all of the data showing the U.S. economy is strong, the labor market still strong. It really makes investors question just how quickly the Fed’s going to decide to start cutting (rates).’
Furthermore, the renewed expectation of a delay to the Fed’s rate cutting cycle is scuppering the market mood. This is allowing the safe-haven US Dollar to gain additional ground against more risk sensitive assets.
Euro (EUR) Stifled by Dovish ECB Comments
The Euro (EUR) is under pressure today, following dovish commentary from European Central Bank (ECB) Policymaker Yannis Stournaras.
As one of the more dovish members of the ECB, Stournaras advocated for the bank to begin cutting interest rates soon.
In a speech, he highlighted concerns over keeping policy too restrictive, stating:
‘We need to start cutting rates soon so that our monetary policy does not become too restrictive. It is appropriate to do two rate cuts before the summer break, and four moves throughout the year seem reasonable. Insofar, I concur with the markets’ expectations. We will have only little new information before the April meeting, especially on wages at the start of 2024 — but we will get a lot more data before the June meeting.’
As recent discussions have centred around the possibility of an April rate cut, Stournaras’ comments have reaffirmed this sentiment amongst investors.
Additionally, as the US Dollar has gathered pace over today’s trade, EUR is enduring additional headwinds due to its negative correlation.
Euro US Dollar Exchange Rate Forecast: ECB Lane Speech in Focus
Looking ahead for the Euro, the core catalyst of movement is likely to be a speech by European Central Bank Chief Economist Philip Lane.
Lane is scheduled to speak tomorrow afternoon, and could inject fresh volatility into the Euro if he maintains a dovish tone. Recent ECB communication has hinted at an April start to policy loosening, and any further hints towards this could weaken it.
For the US Dollar, tomorrow brings the release of the Michigan consumer confidence index. In March, consumer optimism is forecast to have remained unchanged.
This could boost USD by suggesting resilient consumer attitudes, which may filter into increased spending and a lift to the US economy.
