EUR/USD Exchange Rate Jumps on Fed Rate Hike Concerns
The Euro US Dollar (EUR/USD) exchange rate trended higher this morning amid growing concerns regarding the Federal Reserve’s rate plans for 2019.
US Dollar (USD) Undermined by Fed Rate Concerns
The US Dollar (USD) fell back on Thursday morning as investors became skittish following the Federal Reserve’s rate hike in December.
While the hike had been widely expected, the Fed struck a more aggressive tone in its forward guidance for 2019 than had been forecast.
However with many analysts warning of an economic slowdown next year, many USD investors were wary that the US economy would be able to tolerate higher interest rates, while the uncertainty on when they may come also weighed on sentiment.
Researchers at Danske Bank explain:
‘The timing of rate hikes next year has become more difficult as every meeting from now on is ‘live’, as there will be a press conference after every meeting. With a slightly more concerned Fed, March may be too early, making May (or even June?) more likely. Then the second hike would come during the autumn in September or October.’
Euro (EUR) Exchange Rates Strengthened by Italy Budget Resolution
At the same time, the Euro (EUR) continues to find strength this morning following the announcement that Brussels and Rome had reached a compromise on Italy’s controversial 2019 budget.
Rome had previously targeted a budget deficit of 2.4%, flaunting EU fiscal regulations to help cover its ambitious spending plans.
However after months of back an fourth with the European Commission and in the face of threats that Italy could punitive measures, Rome finally relented with its budget plans, agreeing to reduce its deficit target to 2.04%,.
This came as a major relief to EUR investors, many of whom who feared disciplinary measures could fuel further Euroscepticism in Italy.
Italian prime minister, Giuseppe Conte said following the announcement:
‘Over the last few weeks we worked to bring the positions closer without ever moving backwards with respect to the objectives the Italian people set us in the 4 March election.
‘The economic-financial estimates about the measures that attracted the most attention of our European partners revealed that the resources [needed] were less than forecast.’
EUR/USD Exchange Rate Forecast: Rebound in US Goods Orders to Lift USD?
Looking ahead, the Euro US Dollar (EUR/USD) exchange rate may be forced to cede some ground at the very tail end of the week as the US publishes its latest Durable Goods figures.
Economists forecast US goods orders will have rebounded from -4.4% to 1.6% in November, potentially giving a leg up to the US Dollar.
However the accompanying release of the US PCE Price Index may see these gains offset amid expectations that inflation will have stalled in November.
Meanwhile the Euro may struggle to find momentum through the remainder of 2018 as the absence of any notable Eurozone data leaves the single currency without any catalyst for movement.