Homepage » News » EUR/USD » Euro US Dollar Exchange Rate Surges as Federal Reserve Highlights Inflation Concerns

Euro US Dollar Exchange Rate Surges as Federal Reserve Highlights Inflation Concerns

  • Euro US Dollar Exchange Rate Climbs to 1.18 – Fed news holds USD back
  • Federal Reserve Officials Concerned on Inflation – Could US inflation remain low?
  • EUR Forecast: German Inflation Next Week – As well as Eurozone unemployment
  • USD Forecast: US Growth Ahead – US tax reform to remain in focus too

The Euro US Dollar exchange rate saw a solid recovery from its weekly lows on Wednesday evening, as investors were impressed by Eurozone data and disappointed with inflation uncertainty from the Federal Reserve. The Euro was bolstered further by strong PMIs on Thursday.

EUR USD began the week trending at 1.1790 and tumbled to a low of 1.1716 on Tuesday. It trended near that level until Wednesday evening, when the pair surged almost a cent. At the time of writing the pair was trending near a one-month-high of 1.1843.

Euro (EUR) Supported by Strong Domestic Data

Despite political uncertainty in the Eurozone this week, the bloc’s economic outlook continues to look solid and this is helping the shared currency to perform strongly.

On Monday it emerged that German Chancellor Angela Merkel’s coalition talks had fallen through, as the business-friendly FDP Party saw irreconcilable differences and dropped out of negotiations.

While Germany is the Eurozone’s biggest economy and this caused concerns that Merkel could lose power and cause instability in the bloc, investors are generally optimistic enough about the economic outlooks of Germany and the Eurozone to offset those fears for now.

Euro demand has been supported by domestic data in recent sessions.

Wednesday saw the publication of November’s Eurozone consumer confidence projection, which was forecast to improve from -1 to -0.8.

The previous figure was revised lower to -1.1, but the November figure came in with a pleasantly surprising positive figure of 0.1. This was the first positive figure for the Eurozone since January 2001 and was the latest signal that the bloc’s economic fortunes were on the up.

Thursday’s Eurozone data was highly optimistic too, as many of Markit’s preliminary November PMIs came in even higher than expected.

German manufacturing, for example, was forecast to slip slightly from 60.6 to 60.4 but instead rose to an impressive 62.5. Both manufacturing and services beat expectations in France, printing at 57.5 and 60.2 respectively.

These impressive figure pulled the Eurozone PMIs up to 60 in manufacturing and 56.2 in services. The overall Eurozone composite PMI was forecast to remain at 56, but instead rose to 57.5.

Markit’s chief economist, Chris Williamson, summed up the strong figures optimistically;

‘The message from the latest Eurozone PMI is clear: business is booming. Growth kicked higher in November to put the region on course for its best quarter since the start of 2011.

There are signs that political uncertainty appears to have subdued business optimism a little, but the broad-based nature of the upturn, and the rate at which rising demand is feeding through to the labour market, suggests the Eurozone will see a strong end to 2017 and enter 2018 on a firm footing.’

US Dollar (USD) Weighed by Federal Reserve Caution

The US Dollar, on the other hand, slumped on Wednesday evening as investors reacted to the latest Federal Open Market Committee (FOMC) meeting minutes report.

While the minutes did indicate that the Fed still planned to hike US interest rates again in December, investors were concerned that multiple officials had pointed out concerns with US inflation trends.

Many policymakers expressed concern that inflation could fall below targets for longer than previously expected, mirroring Fed Chairwoman Janet Yellen’s concern earlier in the week.

They noted that if inflation remains low, it could pose risks to further interest rate hikes. With the 2018 inflation outlook uncertain, the US Dollar tumbled.

Euro US Dollar Exchange Rate Forecast: Political News Could Weigh

If German political uncertainties rise again in the coming days, this could add renewed pressure to Euro trade and cause the Euro US Dollar exchange rate to shed some of its recent gains.

For example, if it becomes more likely that Germany will head back to the polls for a snap election, the Euro could weaken as investors will become concerned that Chancellor Merkel may not successfully win another term.

If there are no surprising political developments though, the Euro could hold its highs against the US Dollar in the coming days.

Friday will see the publication of Germany’s November business confidence survey from Ifo, which could give the Euro further support if it impresses.

Meanwhile, US Dollar trade will be quieter on Thursday as the US observes the Thanksgiving Day public holiday, but Friday’s US PMI projections from Markit could bolster US Dollar performance if they beat expectations.

EUR USD Interbank Rate

At the time of writing this article, the Euro US Dollar exchange rate trended in the region of 1.1840. The US Dollar to Euro exchange rate traded at around 0.8443.