The Euro US Dollar (EUR USD) exchange rate is trending in a narrow range this morning as markets remain subdued in advance of the European Central Bank’s (ECB) latest policy meeting.
Euro (EUR) Subdued ahead of Key ECB Policy Meeting
The Euro is in a holding pattern this morning as investors appear reluctant to make any major movements as the ECB gears up for what is likely to be the central bank’s most important policy meeting of the year.
Investors are keen to hear whether ECB policymakers will announce plans to begin tapering its quantitative easing programme early next year when the current round of stimulus ends.
The tapering of the ECB’s QE will mark the first step towards the ECB raising interest rates from record lows of 0% so markets are eager to learn whether the bank is confident enough that the Eurozone has recovered enough to wind down its bond purchases.
However with the bank repeatedly stating that rates will remain at a record low of 0% until QE is completely wrapped up investors are also keen to see what pace stimulus is wound down.
Analysts suggest that the bank may slow its €60bn monthly asset purchases to anywhere between €40bn and €20bn, with the ECB possibly choosing opt to buyer fewer bonds each month in order to extend QE for longer.
Fed Chair Speculation Bolsters Appeal of US Dollar (USD)
Central Bank news is also in focus for USD investors this morning as markets react to reports that Stanford University Professor John Taylor is favoured to be the next chair of the Federal Reserve.
The news has increased the appeal of the US Dollar amongst investors as Taylor is seen as policy hawk, someone who is likely to increase the pace of monetary tightening if he becomes chair of the Fed.
Paul Flood, portfolio manager of the Newton Multi-Asset Income Fund said;
‘With President Trump asking senate republicans who should be the next Fed Chair and Stanford University Professor John Taylor apparently winning, this should be supportive of the dollar and a continued sell off in bond markets as Taylor favours higher rates and an unwind of the unconventional monetary policy.’
The Fed is currently expected to implement one additional rate rise by the end of the year, with CME’s FedWatch tool placing the odds of a December rate hike at over 96%.
EUR USD Forecast: German Consumer Confidence to Rise?
Looking ahead movement in the EUR USD exchange rate in the latter half of the week will of course been driven by the outcome of the ECB’s policy meeting tomorrow.
However the Euro could still find some gains early on Thursday morning as Germany releases its latest Consumer Confidence report as some analysts suggest that November’s sentiment index will have risen slightly.
Meanwhile the US Dollar may cede some ground later this afternoon following the release of the latest US Durable Goods Order figures, with economists forecasting that order growth will have slumped from 1.7% to just 1% in September.
Current Interbank Exchange Rates
At the time of writing the EUR USD exchange rate was trending around 1.1768 and the USD EUR exchange rate was trending around 0.8494.