Euro US Dollar Exchange Rate Climbs as ECB Expected to Raise Rates by 25bps
The Euro US Dollar (EUR/USD) exchange rate is seeing modest gains today. The Euro rebounds modestly above parity after sinking to its lowest level in almost 20 years. Hawkish comments from ECB have boosted bets of a 25bps rate hike next week.
At time of writing the EUR/USD exchange rate is trading around $1.0063, a 0.3% jump from this morning.
Euro (EUR) Buoyed by Hawkish ECB Despite Souring Economic Outlook
The Euro (EUR) is making a modest rebound above parity today. The European Central Bank (ECB) is looking likely to raise interest rates by 25bps next week. A bolder hike of 50bps is then expected in September.
Olli Rehn, governing council member for the ECB, confirmed the rate hikes at a panel discussion this morning. This comes as the Euro zone attempts to battle a myriad of issues amid looming recession fears.
Troubling news out of China is adding fuel to the fire of global recession. With GDP data confirming the Chinese economy shrank by 2.6%, missing forecasts of a 1.5% contraction. Combined with rising Covid cases and imminent lockdowns, the Euro could come under increased pressure as the global economic outlook darkens.
US Dollar (USD) Rangebound as Dovish Fed Cools 1% Hike Bets
The US Dollar remains quiet today after two of the Federal Reserve’s most hawkish policymakers favoured a 75bps hike instead of the bumper 1% increase.
Fed Governor Christopher Waller and St. Louis Fed President James Bullard were speaking at the Rocky Mountain Economic Summit in Idaho. They expressed that the market had ‘gotten ahead of themselves’ after the soaring inflation figure and would prefer a 75bps increase.
However, if retail sales would print above forecast today, the Fed would entertain the notion of a much more aggressive 100bps rate hike at the next policy meeting.
Rising Covid cases is China are concerning investors as global recession fears continue to mount, lending support to safe-haven currencies such as the ‘Greenback’. If the world’s second largest economy shows signs of another slowdown, the knock-on effect is likely to exacerbate recessionary fears.
Euro US Dollar Forecast: Strong US Retail Sales to Reaffirm 100bps Hike?
All eyes will be on the release of US retail sales later today. If data exceeds expectations, then markets could well price in the bumper 1% hike at the Fed’s next policy meeting. However, if sales drop below forecasts, the ‘Greenback’ could see demand sap.
Elsewhere, data remains thin on the ground for the Euro so global recession fears will likely continue to weigh heavy, and in turn support the US Dollar as safe-haven flows persist.