- Euro US Dollar Drops to 1.1762 – US Dollar Euro Climbs to 0.8498
- Eurozone ZEW Survey Paints Gloomy Picture – Euro Demand Slips
- Jackson Hole on the Horizon – What can Markets Expect?
The Euro US Dollar exchange rate slipped today after the release of some disappointing ZEW economic surveys.
The Eurozone’s ZEW economic sentiment index for August printed at 29.3, down from the previous print of 35.6 and indeed below the forecast of 32.3. This was the lowest reading since April this year, with some 57.5% of analysts surveyed asserting that they expect economic activity to remain steady in the next six months, and the other 6.6% claiming it will get worse.
Sentiment in the German economy was also revealed to have dropped, with the German ZEW economic sentiment index dropping from previous 17.5 to 10 in August, below the 15.9 forecast. This was their lowest reading since October 2016, a drop predominantly caused by gloomy sentiment regarding German exports and the continuing controversy afflicting the automobile sector.
Draghi’s Speech at Jackson Hole – Euro US Dollar (EUR USD) Volatility Forecast
Whilst today’s data was notable, markets are waiting with baited breath for Friday’s ‘Jackson Hole’ symposium, where European Central Bank (ECB) President Mario Draghi will be discussing the direction of the single currency, and his Federal Reserve counterpart Janet Yellen will be discussing the US Dollar.
Some expect the Euro to remain under pressure amid bets that Draghi will, again, refrain from discussing changes to monetary policy. This has tempered expectations that the ECB will give any form of statement regarding possible changes to its quantitative easing programme, causing the Euro to stumble.
Ultimately, there are three outcomes deemed possible:
The first is that Draghi will actually use Jackson Hole to discuss the tapering of asset purchases, thus causing the Euro to rise. This will, however, exacerbate concerns that the high exchange rate of the currency will impact inflation.
The second is that Draghi will intentionally downplay the possibility of tapering so that the Euro will pare gains, leaving markets in the dark regarding ECB monetary policy.
The final option is, of course, that Draghi simply says nothing – staying consistent with the symposium’s theme and offering no insight into policy.
All three options are liable to cause volatility.
Janet Yellen’s Speech at Jackson Hole – US Dollar (USD) Steady in Anticipation
A lot of the discussion surrounding current Chair Janet Yellen’s participation at this year’s Jackson Hole symposium is regarding her coming to the end of her term as Fed Chief.
Some contend that her participation alone is signal enough that Yellen will be re-appointed, however, others speculate that Yellen may use the symposium as a chance to speak candidly and announce that she will not be continuing for a second term.
Ultimately investors seem unperturbed by either possibility, though Yellen’s attendance at the event was only recently announced, so markets have had a few days to consider the possibility of risk associated with her participation.
If she does announce that she will not be continuing for a second term, then many predict that National Economic Council Director Gary Cohn will be her most likely successor, a transition that will undoubtedly cause some volatility for the US Dollar.