Late-2019 ECB Rate Hike Forecast Leaves EUR/USD Exchange Rate Tight
The Euro (EUR) has traded in a narrow range against the US Dollar (USD) today, with currency trader uncertainty keeping the EUR/USD pairing tight.
Recent Eurozone news has been supportive of the single currency, with economists predicting a European Central Bank (ECB) interest rate hike in September next year.
ECB President Mario Draghi is due to leave the central bank in October 2019, but ING Senior Rates Strategist Martin van Vliet has forecast that:
‘You can downplay what [Mr] Draghi said yesterday, but I think it was a notable shift in rhetoric.
‘If inflation unfolds as the ECB now forecasts, then it makes sense for markets to brace for the first rate hike before Draghi leaves.’
On Monday, Mr Draghi revealed forecasts for an accelerating pace of Eurozone inflation over the coming months, as a consequence of higher wage growth.
Both factors open the door to an ECB interest rate hike, as higher inflation pressures the ECB to act and higher wages mean households are able to withstand higher rates.
Dip in French Business Confidence Limits EUR/USD Exchange Rate Gains
Today’s Eurozone economic data has been limited and relatively unsupportive – a French business confidence reading has dropped in September.
This figure has fallen from 110 points to 107, below the expected 109 point printing.
Any reading above 100 points means that there are more optimistic business owners than pessimistic ones, but the data has still disappointed EUR traders.
US Dollar to Euro (USD/EUR) Exchange Rate Slides as US-China Trade Tensions Continue
Today’s US Dollar to Euro (USD/EUR) exchange rate losses are partly down to the ongoing US-China trading conflict, which intensified on Monday with fresh tariffs.
Both sides are gearing up for further escalations in the future, so USD trader confidence is currently low. On China’s side, state media China Daily has warned:
‘The US’ unilateral trade moves have not only damaged normal China-US trade activities, but also could stunt world economic growth.
‘If the Trump administration continues to stick to its unilateral and protectionist stance, and refuses to respect the fundamental norms of mutual respect and consultation, it would be difficult for the two sides to make substantial progress in any future trade talks.’
Euro to US Dollar Forecast: Will Fed Rate Hike Trigger EUR/USD Exchange Rate Decline?
The next event that could affect Euro to US Dollar (EUR/USD) exchange rate demand will be Wednesday evening’s Federal Reserve interest rate decision.
Fed policymakers are widely expected to hike interest rates from 2% to 2.25%, which might cause a US Dollar rally.
USD traders believe that there will be four total interest rate hikes in 2018; the Fed has already hiked rates twice this year.
There could be further support if Fed officials hint at another interest rate hike in November or December; there will be no rate decision in October.