Euro US Dollar (EUR/USD) Volatile amid Falling Fed Rate Hike Bets
The Euro US Dollar (EUR/USD) exchange rate is trading without a clear direction today amid a lack of notable economic data releases.
At the time of writing the EUR/USD exchange rate is trading at $1.0944, virtually unchanged from this morning’s opening rate.
US Dollar (USD) Slumps ahead of Fed minutes
The US Dollar (USD) is wavering near a six-week low today amid a lack of fresh US data.
Last week’s cooler-than-expected inflation report and slowing employment data continue to weigh heavy on USD, with notable data running thin on the ground.
Amid steadily cooling US inflation and perceived economic slowing, investors and analysts alike speculate that the Fed remains unlikely to raise interest rates in the coming months, leading to increasingly pared interest rate hike bets.
Joseph Trevisani, Senior Analyst at FXStreet.com, commented:
‘The market is convinced, both credit, equities and currencies that the Fed has finished raising rates, but the Fed is not willing to say so. We all know this, we’ve seen this before, we’ve heard it before.’
However, a shift back to cautious trade appears to be cushioning USD’s downside today, with anxious investors shying away riskier currencies in favour of the safe-haven ‘Greenback’.
Euro (EUR) Choppy amid Data Lull
The Euro (EUR) is mixed today amid ongoing concerns about the health of the Eurozone’s economy.
Yesterday’s German producer price index reported a sharp decline, pointing to continual slowing within the Eurozone’s largest economy. Signs of economic weakness are serving to further stifle European Central Bank (ECB) rate hike bets, functioning to keep the Euro rangebound this afternoon.
Much like its US counterpart, gradually cooling inflation within the Eurozone is also dampening investor interest in the common currency, despite mixed commentary from ECB officials.
Pablo Hernandez de Cos, ECB policymaker, argued:
‘It is absolutely premature to start talking about interest rate cuts.’
Between economic pessimism and central bank uncertainty, the Euro faces volatile trade ahead of further data releases.
However, EUR’s losses may be softened by a weakened USD, due to the currency pairings negative correlation.
Euro US Dollar Exchange Rate Forecast: Fed Minutes to Drive USD Volatility?
This evening, the publication of minutes from the Federal Reserve’s November policy meeting will be in focus. With an increasingly dovish stance in recent days, following the latest Fed interest rate hold, investors may expect to see tepid commentary within the report. Should the minutes show further dovish commentary from Fed policymakers, USD may slump further, perhaps hitting fresh lows as rate hike bets plummet.
Looking to the Eurozone, ECB President Christine Lagarde is due to speak later today. With divisive comments ECB policymakers regarding monetary policy, investors may look to Lagarde’s speech for a solidified indication of the ECB’s stance towards future interest rate decisions. Should Lagarde strike a dovish tone in the wake of cooling inflation and economic slowing, the Euro may falter.
In the meantime, any shifts in risk appetite may be a key catalyst of movement for the EUR/USD currency pairing. Should risk appetite increase, both the Euro and US Dollar could gain ground due to their status as safer investment options.