EUR/USD Muted as US Growth Figures Bolster Fed Rate Hike Speculation
The Euro US Dollar (EUR/USD) exchange rate is holding steady at a one-week low this morning as USD continues to be strengthened by Wednesday’s GDP figures.
At the time of writing EUR/USD largely unmoved from this morning’s opening levels as the pairing holds close to its worst level since last week.
US Dollar (USD) Bolstered by Impressive GDP figures
The US Dollar remains in a position of strength against the Euro this morning, following the release of a better than expect final GDP reading for the fourth quarter.
According to data published by the US Commerce Department on Wednesday the US economy expanded by 2.9% in the last three months of 2017.
This was up from the previous estimate of a more muted rate of expansion of 2.5% and beat expectations that the final reading would be revised up to 2.7%
Economists suggest that the better than expected growth could leave the door open for the Federal Reserve to adopt a more hawkish approach to interest rates this year.
Some analysts are now even refusing to rule out the possibility of up to four rate hikes in 2018 as they suggest improved growth prospects could cause the Fed to rethink its commitment to only two additional rate hikes this year.
Gregory Daco, chief U.S. economist at Oxford Economics in New York, said;
‘Tax cuts and stronger government spending will boost average GDP growth to 2.9 percent in 2018, we forecast this environment will lead the Fed to raise interest rates four times this year.’
Euro (EUR) Subdued Despite German Unemployment Striking a New Record Low
Meanwhile the Euro is struggling to rally this morning despite some upbeat employment figures from Germany.
Figures published by Germany’s federal statistics agency, Destatis revealed that the domestic unemployment rate fell from 5.4% to a record low of 5.3% in March.
This was in line with market expectations and saw the total number of unemployed fall by 19,000 to 2.37m.
However analysts warn that Germany’s increasingly tight labour market may end up limiting the countries growth potential in the coming years as businesses are hampered by labour shortages.
EUR/USD Forecast: Will German Inflation Figures Prompt EUR to Rally?
Looking ahead the EUR/USD exchange rate may look to rally later this afternoon following the release of Germany’s latest Consumer Price Index.
Economists forecast that today’s CPI figures will show that domestic inflation ticked up from 1.4% to 1.7% in March.
EUR investors will be hopeful that the robust inflation reading will help place pressure on the European Central Bank (ECB) to begin discussing its path to raising interest rates.
However any gains for the Euro may still be undermined this afternoon as the US publishes its latest PCE Price Index, with any uptick in the the Federal Reserve’s preferred measure for inflation likely to bolster the US Dollar.