Euro US Dollar (EUR/USD) Exchange Rate Falls as Markets Price in 60% Chance of ECB Rate Cut
The Euro US Dollar (EUR/USD) exchange rate slipped and the pairing is currently trading at an inter-bank rate of $1.1234.
On Friday the single currency slumped against the US Dollar as the chances of a rate cut from the European Central Bank (ECB) increased.
Markets are now pricing in a 60% chance of a 10 basis point cut next week compared to a 40% chance earlier during this week’s session.
The slump reversed any gains in the previous session due to dovish comments from a Federal Reserve policymaker.
Jane Foley, Rabobank Analyst noted that ECB President Mario Draghi has surprised with dovish comments twice this year and noted:
‘An ECB move would be more likely to have a shock impact […] a 25 basis point cut by the Fed is priced in.’
Euro (EUR) Slumps as German CPI Disappoints
On Friday morning, the German Producer Price Index (PPI) fell further than forecast in June.
Between May and June, PPI slipped by -0.4%, the worst slump in inflation since December 2018.
Annual PPI fell short of expectations of 1.4% and rose by a worse-than-expected 1.2%.
Single currency sentiment was left dampened as this was the weakest annual rise since December 2017.
US Dollar (USD) Buoyed as Mnuchin Hints at Possibility of In-Person US-China Talks
On Thursday, American and Chinese officials held a telephone conversation, and US Trade Secretary Steven Mnuchin suggested in-person talks could follow.
Along with US Trade Representative Robert Lighthizer, Mnuchin spoke to their Chinese counterparts on Thursday.
Speaking to Reuters, Trade Secretary Mnuchin said:
‘Right now we’re having principal-level calls and to the extent that it makes sense for us to set up in-person meetings, I would anticipate that we would be doing that.’
When asked whether the call may lead to face-to-face talks, Mnuchin said:
‘It’s possible, but I’m not going to speculate on the outcome.’
Last Night: US Dollar (USD) Slides as Federal Reserve Needs to ‘Act Quickly’ and Cut Rates
On Thursday, the ‘Greenback’ plunged against the single currency as dovish Federal Reserve officials lay out a case for an aggressive interest rate cut.
Vice Chairman of the Fed’s rate-setting committee, John Williams said that when rates and inflation are low, policymakers cannot keep their ‘powder dry’ and wait for economic problems to materialize.
However, he did not state whether this meant he would support a rate cut later this month.
While Williams said that the Fed needs to ‘act quickly’ as economic growth slows, a spokesperson from the Fed said those comments were ‘not about potential policy actions.’
Meanwhile, Fed Vice Chair Richard Clarida stated that cutting interest rates quickly was a good strategy.
In an interview with Fox Business Network, Clarida stated:
‘You don’t have to wait until things get so bad to have a dramatic series of rate cuts.
‘You don’t want to wait until data turns decisively if you can afford to.’
Euro US Dollar Outlook: Could a Dovish Fed Weigh on USD?
Looking ahead to this evening, the US Dollar (USD) could slump against the Euro (EUR) following a speech from the Federal Reserve’s Eric Rosengren.
The ‘Greenback’ could slide if the tone of the Boston Fed President is overly dovish and there are further signals the Fed will cut rates next month.
Meanwhile, at the start of next week the Dollar could edge up following the release of the Chicago Fed National Activity Index.
If the index rises higher than forecast in June, the Euro US Dollar (EUR/USD) exchange rate could slump.