In the calm before a potential Federal Reserve interest rate hike, the Euro to US Dollar (EUR/USD) exchange rate has risen by 0.3%.
This appreciation is potentially because of Euro trader hopes for tighter monetary policy from the European Central Bank (ECB).
Although the Fed is widely predicted to raise interest rates this evening, this is considered a more ‘priced-in’ event than policy change at the ECB.
While the US Dollar may see some appreciation on a Federal Reserve interest rate hike, the EUR/USD exchange rate might remain positive regardless.
(Last updated 13th June, 2018)
Poor Eurozone Confidence Scores Limit EUR/USD Exchange Rate Gains
The Euro (EUR) has made a minor rise against the US Dollar (USD) today, in the lull before a pair of major central bank meetings.
Today’s Eurozone news has been notably negative, which means that the weaker US Dollar is the source behind today’s EUR/USD exchange rate rise.
Optimism in the single currency bloc is falling based on data from research company ZEW, which reports declining economic sentiment in Germany and the Eurozone.
The German reading fell from -8.2 points to -16.1, while the Eurozone reading dropped from 2.4 to -12.6. Both results were worse than forecast.
Summarising the reasons for the sharp decline in German optimism, ZEW President Achim Wambach said:
‘The recent escalation in the trade dispute with the United States as well as fears over the new Italian government pursuing a policy which potentially destabilises the financial markets have left their mark on the economic outlook for Germany.
‘On top of this, German industry has been reporting worse than expected figures for exports, production and incoming orders for April.
‘As a result, the economic outlook for the next six months has worsened considerably.’
US Dollar to Euro (USD/EUR) Exchange Rate Declines as Trump-Kim Deal Brings Scepticism
Today’s US Dollar to Euro (USD/EUR) exchange rate movement has been disappointing, with the US currency dropping against most peers.
This poor performance comes after a historic meeting between President Donald Trump and North Korean Leader Kim Jong-un in Singapore.
The two leaders appeared to establish a rapport, but following the meeting there have been worries that Mr Trump gave too much away for too little in return.
An agreement to denuclearise North Korea was notably lacking in detail, while Mr Trump has agreed to stop joint military exercises and training with South Korea.
In other news, the pace of inflation in the US has risen for May’s year-on-year readings, for the core and base figures.
This is good news on the face of it, but USD traders are too focused on Wednesday’s Fed interest rate decision for this to have an immediate effect.
Euro to US Dollar Exchange Rate Forecast: Are EUR/USD Losses ahead on Fed Interest Rate Hike?
The Euro (EUR) may have advanced against the US Dollar (USD) today, but is at risk of making losses on Wednesday evening.
This is when the US Federal Reserve will make its interest rate decision for June; economists have priced in a rate hike from 1.75% to 2%.
Despite the attitude that this is already an assured outcome, the US Dollar could still rise sharply on such news.
At least three US interest rate hikes are expected in 2018; a hike tomorrow would be another step towards realising this outcome, after the earlier rate hike in March.
In a similar situation, there will also be a European Central Bank (ECB) meeting this week, coming a day later on Thursday afternoon.
As with the Fed event, this could be a volatility-inducing affair depending on the comments made by ECB policymakers.
EUR traders will be especially alert for any signs that the ECB’s bond-buying program, known as quantitative easing (QE), could be about to close down.
QE is ‘loose’ monetary policy and is seen as a sign of the ECB’s lack of confidence in the strength of the Eurozone at present.
If officials suggest that QE will be wound down in coming months, however, then the Euro could rally against the US Dollar.