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EUR/USD Exchange Rate Steady on Fed Rate Hike Bets, ECB Minutes Ahead

  • Euro exchange rate mixed – Eurozone inflation data meets estimates
  • USD exchange rate climbs – Consumer price growth pressures Federal Reserve
  • Market sentiment damp – Global stocks volatility weighs on risk-appetite
  • EUR/USD forecast to trend narrowly – But ECB minutes could spark movement

Euro (EUR) Exchange Rates Mixed but Forecast to Decline in the Long-term

The Euro to US Dollar (EUR/USD) exchange rate softened by around -0.3% on Wednesday afternoon.

In response to domestic data meeting with expectations, the Euro climbed versus some of its major peers. However, Euro appeal is limited by speculation that the European Central Bank (ECB) will look to ease policy further. April’s Eurozone Consumer Price Index held at 0.0% and -0.2% on the month and on the year respectively. This did little to encourage hopes of improvement in consumer prices, however.

‘I am more worried about deflation,’ said ECB governing council member Ignazio Visco. ‘With this come bankruptcies and very negative effects on the real economy. I believe we still face a concrete deflation risk.’

Also dampening the outlook for the single currency was mounting political uncertainty. If the UK votes to leave the EU, it is thought to have a more damaging impact on Europe than the UK. That is because many fear that a ‘Brexit’ will be the catalyst for other EU member states to leave. What’s more, it may even prompt Eurozone members to consider retiring the shared currency.

Factors likely to impact EUR/USD exchange rate movement as the week continues include the ECB’s account of the last monetary policy meeting and US Leading Indicators.

The ECB minutes are due to be published at 12:30, with the Eurozone’s latest construction output numbers scheduled for release just before.

The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1218.

US Dollar (USD) Exchange Rates Rally on Improved Federal Reserve Policy Outlook

After US data showed improvement in consumer prices, housing starts and industrial production, hopes that the US economy accelerated in the second-quarter caused some Fed officials to call for a near-term rate hike.

Atlanta Fed President Dennis Lockhart said that he still predicts there will be two to three rate hikes between now and December, stating;

‘I think it [June Policy Meeting] certainly could be a meeting in which action could be taken.’

San Francisco Fed President John Williams, who was speaking alongside Lockhart in Washington, agreed that two or three rate hikes this year ‘seems reasonable’ adding;

‘I think incoming data have actually been quite good and reassuring.’

Also supportive of demand for the US Dollar was dampened market sentiment in response to falling commodity prices and global stocks volatility. Of particular damage to risk-appetite was Hong Kong’s Hang Seng Index, which ended the Asian session a massive -1.45% down.

With an absence of influential domestic data to be published until much later today, there is a high chance that the US Dollar will hold gains versus its currency rivals for the remainder of the European session.

The Euro to US Dollar (EUR/USD) exchange rate dropped to a low of 1.1254 during Wednesday’s European session.

EUR/USD Exchange Rate Forecast to Hold Losses ahead of FOMC Minutes

Later this evening meeting minutes from the most recent Federal Open Market Committee (FOMC) interest rate decision will be published. Given that Fed Chairwoman Janet Yellen delivered a particularly dovish speech following the meeting, there is a high chance that the minutes will also print dovishly. This doesn’t necessarily mean that the US Dollar will decline heavily, however, given recent developments to improve rate hike prospects.

The Euro to US Dollar (EUR/USD) exchange rate reached a high of 1.1316 during Wednesday’s European session.