ECB President Mario Draghi gives Dovish Speech at Central Banking Forum – Euro (EUR) Exchange Rates Fall
The Euro US Dollar (EUR/USD) exchange rate came under significant pressure on Tuesday, falling as investors responded to a series of dovish statements from European Central Bank (ECB) President Mario Draghi at the ECB Forum on Central Banking in Sintra, Portugal.
In his opening remarks, Mr Draghi reasserted that the bank needs to remain extremely cautious about the timing of interest rate hikes, and that monetary policy must remain patient, persistent and prudent.
‘We will remain patient in determining the timing of the first rate rise and will take a gradual approach to adjusting policy thereafter. The path of very short-term interest rates that is implicit in the term structure of today’s money-market interest rates broadly reflects these principles’.
This news proved consistent with the attitude of the central bank revealed in last week’s ECB rate meeting, with Mr Draghi having previously asserted that a rate hike isn’t likely until after summer 2019.
Understandably, this sentiment kept demand for the Euro limited.
US Dollar (USD) Exchange Rates Storm Ahead, Capitalising on Market Trade Anxieties
The US Dollar (USD) posted a strong performance on Tuesday, profiting from market turmoil as the US threatened Beijing with tariffs targeting $200bn of Chinese goods.
US President Donald Trump insisted that the tariffs would come into effect if China ‘refuses to change its practices’, referring to China’s questionable use of foreign intellectual property and their sizable trade surplus with the US.
At first sight, one might presume that the threat of a tariff exchange might hurt a nation’s respective currency value, but in this regard, the ‘Buck’ quickly rallied.
This was because tariff measures could cause inflation in the US to rise, which could then force the US Federal Reserve to counter with higher interest rates – thus making the ‘Greenback’ an attractive investment option.
Beyond this, the US Fed is still regarded as the most hawkish of the world’s premier central banks, making the ‘Buck’ a solid choice for investors.
Euro US Dollar (EUR/USD) Exchange Rate Forecast: Eurozone, US PMI Results in the Spotlight
There is very little going on this week in regards to data for the bloc and the US, but Thursday and Friday will include a fleet of PMI releases for both.
Investors currently expect the bloc’s composite reading to ease in June from 54.1 to 53.9 – a result that would reinforce market anxieties of a slowdown in Q2 this year and likely send EUR/USD even lower.
The US results are also expected to ease slightly, however, but to an almost negligible degree compared to the Eurozone’s.