Euro US Dollar (EUR/USD) Exchange Rate Drops Following ECB Interest Rate Decision
The Euro US Dollar (EUR/USD) exchange rate is falling today. Major losses for the exchange rate could be limited following hawkish forward guidance from the European Central Bank (ECB). Markets had been expecting a more aggressive interest rate hike schedule from the ECB however. This likely prompted the sell-off in the Euro (EUR) which may be pulling the currency pair lower.
Additionally, above-forecast US unemployment figures may be limiting gains for the exchange rate.
At time of writing the EUR/USD exchange rate is at around $1.0691, which is down around -0.3% from this morning’s opening figures.
Euro (EUR) Changeable as Lagarde Warns of ‘Major Downside Risks’
The Euro (EUR) is showing some volatility today after the ECB announced that interest rates would remain unchanged this month. The single currency saw an initial boost ahead of the central bank’s meeting. EUR has since shed many of its gains amid some dovish signals from President Christine Lagarde on the Eurozone’s long-term prospects.
Whilst the ECB left interest rates unchanged this month, the Euro is likely to remained underpinned following confirmation of future rate hikes. The central bank is set to raise interest rates by 0.25% in July. President Lagarde justified this by stating that it would be ‘good practice’ to start with a smaller increment.
Markets had been hoping for an initial 0.5% hike, with selling of the Euro potentially prompted by their disappointment. Dovish comments from Lagarde may have also pushed EUR lower today. The ECB’s President warned of the ‘major downside risk’ the Ukraine-Russia conflict could have on the Eurozone economy.
Speaking on the ECB’s forward policy, Gupreet Gill of Goldman Sachs said:
‘The ECB opened the door for a 0.5% rate hike in September, however. In addition, the central bank’s preparedness to resume asset purchases if necessary has hawkish implications for the medium-term path of policy rates.’
US Dollar (USD) Gains as Market Labour Tightens Further
The US Dollar (USD) is seeing mixed fortunes today. A generally risk-off mood as well as strong jobless figures could be bolstering the currency against its riskier rivals. On the other hand, the ‘Greenback’ is dropping against safer currencies amid market hopes that US inflation is set to ease.
Initial jobless claims for last week rose above-forecasts by the largest amount since July 2021. The robust figures are continuing to keep the country’s labour market tight. The data may also be keeping investors looking to the Federal Reserve for action.
Expectations of a rate hike from the Fed next week may well be preventing major losses for USD today. Speaking last week, Fed board member Loretta Mester stated her belief that 0.5% rate hikes would continue to be necessary unless she saw ‘compelling evidence’ to the contrary.
The possibility that inflationary pressures in the US could seen ease has muddied the waters for the Fed and may be limiting significant bets on the currency today.
EUR/USD Exchange Rate Forecast: Will US Inflation Ease as Forecast?
Looking ahead for the Euro (EUR), an additional speech from ECB President Christine Lagarde could prompt movement in the single currency on Friday. Investors will be looking for additional hawkish signals from the ECB’s president.
For the US Dollar (USD), inflation figures could pull the currency lower if they print as forecast on Friday. May’s rate of inflation is forecast to drop which could reduce expectations of future 0.5% rate hikes from the Fed, and in turn bets on USD.