The Euro has seen a slight rise against the US Dollar on Tuesday afternoon, rising from an earlier rate of 1.1833 to a higher 1.1881.
Developments in the US threaten to erase these gains, however, as Fed official Jerome Powell continues with his confirmation hearing.
The presumed leader of the Fed in 2018 has said the right things according to USD traders, who have been especially pleased to hear that he appears to back (at least) a December interest rate hike.
(First published November 28th, 2017)
Trader anxiety has caused the Euro to depreciate today, against the US Dollar and most other peers.
- EUR USD rate down at 1.1833 – USD EUR trades higher at 0.8412
- Euro loses ground to USD – Concerns grow about stronger Dollar ahead
- US Dollar appreciates on growth outlook – Fed official talks down future rate hikes
- Major German confidence data incoming – Will USD rise further on Fed speeches?
The US Dollar has fared better, having appreciated thanks to supportive forecasts for future economic growth.
Euro US Dollar Rate Worsens on Pre-emptive Pessimism among Traders
The Euro has declined in trading against the US Dollar today, mainly because of trader fears.
The worry is that upcoming Federal Reserve speeches will provide a significant boost to the US Dollar, which will in turn weaken the Euro.
Domestic news has been limited; corporate lending across the Eurozone is at a post-financial crisis high.
This has been received well by economists, as it suggests healthy economic activity across the single currency bloc.
US Dollar Euro Rate Improves on 2018 Growth Forecasts
Assumptions about future US growth have enabled the latest US Dollar to Euro advance, which comes despite a recent dovish Federal Reserve speech.
In the former case, confidence in the Dollar has risen because of assertions that the US economy will pick up in 2018.
Neil Dutta, Head of Economic Research at Renaissance Macro, believes that some forecasters are being too cautious in their estimates;
‘Estimates of real growth are just 2.4% in 2018.
Some forecasters assume a stronger expansion as a result of the Trump administration tax legislation.
Our sense is that the consensus appears awfully complacent, as growth is picking up regardless of changes to fiscal policy. Thus, there are upside risks’.
This is certainly a welcome change from other predictions, as Dutta predicts that the economy will pick up even if tax reform efforts fall flat.
Elsewhere in the US, Fed official Neel Kashkari has prevented a USD rally with comments about interest rates.
Speaking at an event in Minnesota, Kashkari suggested no near-term interest rate hikes (“tapping the brakes”, in his words);
‘Because inflation is low, I am seeing no reason to tap the brakes on the economy.
My perspective is, let’s allow the job market to continue to strengthen, allow more Americans to go back to work and allow wages to strengthen.
Then, if we start to see inflation creep back up to our 2-percent target, we can tap the brakes then.
I don’t see any reason [to do that now], when inflation is continuing to run low’.
These cautious remarks have acted as a limiting factor on the USD.
Will German Confidence Reading Trigger EUR/USD Rate Rise?
The Euro has a chance to recover against the US Dollar at noon today, when a German confidence reading comes out.
The GfK consumer confidence report for December is tipped to rise from 10.7 points to 10.8.
While a minimal increase, this would still show resilience among German consumers despite the ongoing political crisis.
Following Kashkari’s remarks, there will be two more Fed speeches this afternoon.
Speaking will be William Dudley and Jerome Powell; both officials will be voting on the December interest rate decision and Powell will be the new Fed Chair in 2018.
If both men support higher interest rates in 2018, the US Dollar could rally.
A December 2017 rate hike is largely priced in, but traders remain unsure about what the coming year holds.
Current Interbank EUR USD Exchange Rates
At the time of writing, the Euro to US Dollar (EUR USD) exchange rate was trading at 1.1883 and the US Dollar to Euro (USD EUR) exchange rate was trading at 0.8412.