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Euro to US Dollar Exchange Rate Jumps to September Best on European Central Bank News

Euro to US Dollar Exchange Rate Benefits from ECB President Draghi’s Comments

While the European Central Bank (ECB) left Eurozone monetary policy frozen today as expected, the bank’s tone on Eurozone inflation and plans to lighten the bank’s quantitative easing (QE) plans helped the Euro to US Dollar (EUR/USD) exchange rate to advance.

Since opening this week at the level of 1.1558, EUR/USD has been edging higher. This has been largely due to a slightly weaker US Dollar (USD) as risk-sentiment rises.

Due to Thursday’s European Central Bank news and some underwhelming US data, EUR/USD jumped again and hit a new September high of 1.1678.

Whether EUR/USD sustains these highs this week depends on Friday’s upcoming US retail data, as well as potential developments in US trade relations.

Despite warnings from ECB President Mario Draghi about US protectionism and a slightly weaker Eurozone growth outlook from the bank, the Euro (EUR) benefitted from the day’s ECB news.

Euro (EUR) Exchange Rates Climb as Eurozone Inflation Forecasts Remain Solid

The European Central Bank (ECB) left Eurozone monetary policy frozen as expected in its September decision, but the bank’s comments and tone on the Eurozone economic outlook still proved influential to the Euro on Thursday.

The bank continued to indicate that it would unwind its aggressive quantitative easing (QE) stimulus program by the end of the year, as it projected earlier in 2018.

The bank explicitly confirmed that it would halve bond purchases to €15b from October. This put an ease to some concerns that the bank’s plans to unravel QE could be impacted by recent economic uncertainties.

In a press conference following the policy decision, ECB President Mario Draghi also said that the effects of the emerging market issues in Turkey and Argentina had ‘not been substantial’ to the Eurozone.

This lightened market concerns that the Eurozone’s economy or the Euro could be contaminated by recent issues in emerging markets.

Perhaps most influential, however, was the fact that the ECB left its inflation forecasts unchanged despite the recent concerns about US trade protectionism.

With Eurozone inflation expected to remain steady and the bank confident in the Eurozone economy’s underlying strength despite lowering its growth forecasts, Euro investors were relieved and the Euro strengthened.

US Dollar (USD) Exchange Rate Slips as US Inflation Falls Short of Forecasts

The Euro was able to more easily climb versus the US Dollar on Thursday as the latest US data simply wasn’t very impressive.

The safe haven US Dollar has been sliding this week, amid speculation that US trade relations with Canada and China could improve. This limited market demand for safe havens and made investors more willing to take risks.

Investors sold the US Dollar off further following the publication of August’s US Consumer Price Index (CPI) inflation rate report, which fell short of forecasts in all major prints.

The month-on-month inflation rate was forecast to have risen from 0.2% to 0.3%, but instead remained at 0.2%. The yearly inflation rate slipped from 2.9% to 2.7% rather than the predicted 2.8%.

Core inflation fell too, from 2.4% to 2.2% year-on-year rather than remaining at 2.4% as forecast.

The news weighed on any remaining hopes that the Federal Reserve would consider increasing the pace of its US interest rate hike plans. According to Kevin Cummins from NatWest Markets:

‘I’d look past the weakness,

doesn’t really change the calculus from the Fed’s perspective — it keeps them on a gradual pace’

Euro to US Dollar (EUR/USD) Outlook Could Rise Further if US Retail Sales Disappoint

Most of the week’s most notable Eurozone news has been covered now, and the Euro to US Dollar (EUR/USD) exchange rate is on track to sustain over a cent in gains if it remains strong on Friday.

Eurozone trade balance and wage growth data will be published on Q2, but unless these are notably disappointing their influence on the Euro is unlikely to be significant.

Disappointing Eurozone trade data could worsen concerns about US-EU trade relations though, which could cause the EUR/USD to slip from this week’s highs.

Unless US-EU trade tensions worsen though, the Euro is unlikely to see much weakness on Friday – so late-week EUR/USD movement will depend more on US data.

Friday will see the publication of multiple key US ecostats from August, including August’s retail sales results, as well as industrial and manufacturing production.

US retail sales could prove particularly influential if they surprise investors. These stats, and Michigan University’s September consumer sentiment projections, are most likely to drive late-week Euro to US Dollar (EUR/USD) exchange rate movement.