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Euro US Dollar (EUR USD) Soars on Upbeat ZEW Economic Sentiment

  • Euro US Dollar Hits 1.2006 – US Dollar Euro Slips to 0.8327
  • Eurozone Data Continues to Prove Positive – Euro Bolstered
  • USD Bearish Before Fed Meeting – Markets Speculate on Possibility of QE Tapering

The Euro US Dollar exchange rate continued its climb this morning with Eurozone data continuing to prove positive.

Germany’s September ZEW economic sentiment index smashed expectations of 12.9 this morning by printing at 17 – significantly higher than August’s score of 10. This jump was predominantly caused by robust growth figures in Q2, a steep rise in investment activities and bank lending by both private and government companies.

The Eurozone’s ZEW economic sentiment index also proved positive, printing at 31.7 in September, beating the August figure of 29.3 but scoring lower than the market expectation of 32.4.

The Euro quickly capitalised, with investor demand for the single currency driving EUR USD ever higher.

Eurozone Inflation Prints as Expected – EUR Mildly Bolstered

Yesterday consumer prices in the Eurozone were revealed to have increased by 1.5% year-on-year in August, in line with the preliminary forecast and up from the previous period’s 1.3% gain. This was notably the highest inflation rate that the Eurozone has recorded since April – a leap predominantly caused by climbing energy prices.

The core figure, however, (which excludes energy, unprocessed food and tobacco) remained steady at 1.2%.

Whilst the headline figure did increase, it still remained well below the European Central Bank’s (ECB) target, furthermore the ECB also noted on Monday that it predicts a slump in EU inflation in Q1 2018, thus the market reaction remains somewhat minor.

USD Subdued, Wednesday’s Federal Reserve Meeting Looms

US Data proved somewhat of a mixed bag yesterday with the NAHB housing market index demonstrating a drop to 64 in September following a downwardly revised 67 in August. This reading was well below the market forecast of 67, with recent storms Harvey and Irma raising concerns about both the availability of building materials and labour.

Apprehensions regarding the damage wrought by the recent storms continues to limit the upward potential of the ‘Greenback’, especially when combined with the on-going situation with North Korea and a costly estimate regarding the rescinding process of DACA.

Euro US Dollar Forecast: Volatility Ahead of the Fed Rate Decision

US building permits, current account figures, housing starts figures and import and export prices are all due later today and could cause volatility in the build-up to the Fed’s rate decision.

Export prices are predicted to increase in August from 0.2% to 0.4%, whilst the current account deficit is forecast to have widened even further from $-115.1B to $-116.8B in Q2.

In addition, housing starts in August are forecast to have shrunk from 1180k to 1155k.

If these negative data prints materialise then the Euro will likely extend this morning’s gains.

Tomorrow’s September rate decision is being widely speculated upon, with the primary anticipation being that Fed Governor Janet Yellen will announce the tapering of the central bank’s balance sheet.

Markets do not currently predict that the Fed policymakers will vote to raise interest rates at this meeting, though a recent survey of 42 economists from Bloomberg revealed that many predict that the Fed is on track for tighter monetary policy at the December rate meeting and that an announcement on the balance sheet will take place tomorrow.

If Yellen takes a hawkish stance and does indeed mention the winding down of their $4.5 trillion balance sheet then the ‘Greenback’ may well claw back its recent losses against the Euro.