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Euro US Dollar Exchange Rate Nears Monthly Best as Hawkish Fed Speculation Fizzles Out

Euro US Dollar Exchange Rate Attempts to Hold Near Monthly Best 

The US Dollar (USD) has been weakening as Federal Reserve speculation softens, and the Euro US Dollar (EUR/USD) exchange rate has been capitalising on this. Demand for the Euro (EUR) is also finding a little support from improving Eurozone recovery hopes. 

Since opening this week at the level of 1.1900, EUR/USD has been continuing to advance. 

EUR/USD has gained over half a cent, and has touched on a monthly best level of 1.1989 over the past day. At the time of writing at the end of the week, EUR/USD is trending close to those best levels in the region of 1.1978. 

PMI projections and European Central Bank (ECB) news could influence the Euro and US Dollar next week. 

Euro (EUR) Exchange Rates Rally on Rival Weakness but Gains Limited 

Demand for the Euro has been improving in recent weeks, due largely to weakness in its biggest rival the US Dollar. The two currencies share a negative correlation, so the Euro often climbs in times of US Dollar weakness. 

On top of this though, market hopes for the Eurozone to eventually see a strong recovery from the coronavirus pandemic are also supporting EUR. 

Analysts remain cautious though, with a Reuters poll finding that the bloc’s slow vaccine rollout is one of the biggest concerns in the outlook. According to Yvan Mamalet, Senior Euro Economist at Societe Generale: 

‘The turn of the first quarter is where things became more complicated for Europe and it will have a negative impact on the first half of the year, 

If the rollout of vaccinations doesn’t speed up as much as we expect, it will probably mean lifting of restrictions will be at a later stage and the return to quasi-normality will have to be delayed further.’ 

US Dollar (USD) Exchange Rates Continue to Tumble as Fed Bets Unwind 

Much of the US Dollar’s recent surge higher was due to speculation that recovery from the coronavirus pandemic would push inflation higher and pressure the Federal Reserve to tighten monetary policy. 

However, dovish Fed comments and largely unsurprising US inflation data over the past week or so have poured cold water on that speculation. Investors have been selling the US Dollar again as Fed tightening speculation fades. 

Some analysts were surprised that markets seem to have accepted the Fed’s tone already. According to Chris Turner, Global Head of Markets at ING; 

‘One of the biggest perceived risks to the 2021 recovery story playing out in financial markets is a bond tantrum – or a disorderly rise in US yields, 

Thus, it has been surprising this week to see the large decline in US yields, despite above consensus US CPI and retail sales.’ 

Euro US Dollar (EUR/USD) Exchange Rate Investors Await Eurozone Outlook Developments 

Unless there is a surprise recovery in Federal Reserve tightening speculation or a shift in the US coronavirus situation, the US Dollar is likely to remain fairly unappealing for the time being. 

Amid a lack of notable US ecostats due for publication next week, the Euro to US Dollar exchange rate may be driven more by movement in the Euro instead. 

Many key Eurozone ecostats will be published toward the end of next week, including Eurozone consumer confidence and PMI projections for April. These could boost the Eurozone outlook if they impress, and make the Euro more appealing. 

However possibly the biggest news expected next week will be the European Central Bank’s (ECB) April policy decision. 

If the ECB takes a more optimistic tone on the Eurozone’s recovery outlook, investors may be less anxious about continuing to buy the Euro. 

This, as well as continued US Dollar weakness, could lead to more gains for the Euro US Dollar (EUR/USD) exchange rate.