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Euro US Dollar (EUR/USD) Falls to Monthly Low amid Hawkish Fed Sentiment

Euro US Dollar (EUR/USD) Slumps amid Falling Fed Rate Cut Bets

The Euro US Dollar (EUR/USD) exchange rate is declining today, as Federal Reserve policymakers strike hawkish in the wake of last week’s strong US economic data.

At the time of writing the EUR/USD exchange rate is trading at $1.0754, down approximately 0.3% this morning’s opening rate.         

US Dollar (USD) Firms on Hawkish Fed Sentiment

The US Dollar (USD) continues to strengthen today as unexpected talks of restrictive monetary policy boost ‘Greenback’ sentiment.

Federal Reserve Chair, Jerome Powell, stated that it was ‘not likely’ that the Fed would deliver a widely expected March interest rate cut, as the central bank remains wary of US inflationary pressures.

While markets had been widely expectant of interest rate cuts in the first quarter of 2024, a surprise pivot from Fed policymakers leaves investors resizing speculations of imminent unwinding, thereby lifting USD.

During his unexpectedly hawkish address, Powell said:

‘The danger of moving too soon is that the job’s not quite done, and that the really good readings we’ve had for the last six months somehow turn out not to be a true indicator of where inflation’s heading.

We don’t think that’s the case. But the prudent thing to do, is to just give it some time and see that the data continue to confirm that inflation is moving down to 2% in a sustainable way.’

Euro (EUR) Slumps amid Weak Trade Data

The Euro (EUR) fell today as the latest German trade data missed forecasts.

While Germany’s trade surplus widened more than forecast, exports unexpectedly fell to a 23-month low at -4.6%, due to decreased demand from the US. As the world’s third largest export, slumping demand may be felt in the wider Euro area, thus denting the common currency today.

Destatis, German Federal Statistics Office, reports:

‘Most German exports went to the United States in December 2023. After calendar and seasonally adjusted adjustments, 5.5% fewer goods were exported there than in November 2023. This means that exports to the United States fell to a value of 12.7 billion euros.’

Imports also fell more than anticipated by 6.7%, indicating that national demand is also beginning to loosen as the German economy struggles to pick up a sense of momentum, leaving EUR to face headwinds as today’s session progresses.

Euro US Dollar Exchange Rate Forecast: Strong PMI to Lift USD?

Looking ahead, the latest ISM services PMI is due for release in the US this afternoon. A forecast rise in January’s index to 52, up from 50.6 in the previous month may lift the ‘Greenback’, amid signs of economic resilience in the vital services sector.

This evening, a speech from Federal Reserve policymaker Raphael Bostic could also boost the ‘Greenback’, should Bostic speak in line with the increasingly restrictive stance adopted by Fed officials in relation to upcoming monetary policy decisions.

Tomorrow, the latest Eurozone retail sales data is due for release. Economists expect to see retail activity contract in December’s reports by 1%, falling below the previous month’s 0.3% decline. This may leave EUR on the defensive amid signs that the retail sector failed to improve during the lucrative ‘Golden Quarter’ in 2023.