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Euro US Dollar Exchange Rate Tight after ECB President’s Comments

The Euro has remained tight against the US Dollar on Wednesday’s afternoon session, following boilerplate comments from European Central Bank (ECB) President Mario Draghi.

The ECB head ran through a familiar script during a conference in Madrid, stating that;

‘When we introduced unconventional policy instruments in order to secure a return of inflation towards our objective, we were aware that those new instruments could result in somewhat more pronounced side-effects than conventional instruments. These side-effects have remained contained. Our current assessment of the side-effects suggest therefore that there is no reason to deviate from the indications we have been consistently providing in the introductory statement to our press conferences’.

Essentially, the status quo is intact, so the ECB won’t be making radical monetary policy changes anytime soon. This has had a marginal negative effect on the Euro US Dollar exchange rate, resulting in only a slight dip to 1.1175 compared to earlier trading.

(First published 12:00, May 24th, 2017)

The Euro has traded closely against the US Dollar today, owing to recent mixed data from the Eurozone and US.

  • EUR USD trades tightly at 1.1181 – USD EUR rate close at 0.8942
  • Euro flat after Praet speech – Rising German confidence fails to boost EUR demand
  • US Dollar unsettled by budget feedback – Fed’s Harker hints at June rate hike
  • Euro rally possible on upcoming Draghi comments – Fed minutes may strengthen case for June interest rate hike

On the Eurozone side, the single currency has been unsettled by a speech from European Central Bank (ECB) official Peter Praet.

Discussing the influence of inflation rates on ECB policy, Praet said;

‘Underlying inflation pressures still give scant indications of a convincing upward trend as domestic cost pressures, notably wage growth, remain subdued. Overall, while we see a more resilient economic recovery, we still need to build confidence that the projected path of inflation is robust, durable and self-sustained’.

Essentially, the ECB is not committed to tightening monetary policy (i.e raising interest rates) until it looks like inflation is growing at a steady rate.

Eurozone domestic data has been positive today, but not enough to raise Euro demand. The GfK German consumer confidence figure for June has risen from 10.2 to 10.4, against forecasts of stagnation.

In US news, the 2018 budget proposal has faced criticism from Democrat and Republican officials, lowering confidence in the US Dollar.

Republican Senator John McCain has called the ambitious plans ‘dead on arrival’, while fellow Republican Senate Majority Leader Mitch McConnell has been more pragmatic, stating;

‘The President’s budget is a recommendation. We’ll be taking into account what the President is recommending but it will not be determinative in every respect’.

Recent Federal Reserve news has been more positive for the US, with Fed official Patrick Harker stating that a June interest rate hike is ‘a distinct possibility’.

The ECB will remain an influential force on the Euro today, with ECB President Mario Draghi due to speak in the near-future.

If Draghi echoes Praet’s sentiment that consistent inflation growth is needed before the ECB takes action, then the Euro could remain tight against the US Dollar. However, if he is more hawkish than Praet on future policy changes then the EUR USD exchange rate could appreciate.

Today will also bring the French jobless claims figures for April. If claims fall significantly, this too could break the current EUR USD stalemate.

Today’s US economic news will consist of existing home sales for April and Federal Reserve meeting minutes.

Sales are forecast to slow by -1.1%, but if the Fed minutes hint at a June interest rate hike then any losses may be minimal.

The current odds of a June Fed rate hike are just over 83%, so further fuel for this outlook could trigger a late USD EUR rally.

Thursday’s main US news will be initial and continuing jobless claims figures for May. Increases are forecast for both fields, which could lower confidence in USD.

Current Interbank EUR USD Exchange Rates

At the time of writing, the Euro to US Dollar (EUR USD) exchange rate was trading at 1.1180 and the US Dollar to Euro (USD EUR) exchange rate was trading at 0.8942.