- Euro (EUR) Exchange Rates Hold Weakness on ECB Bond Purchases – Positive domestic data not enough to offset losses
- US Dollar (USD) Steadies after Surge – Advance Retail Sales data and safe-haven demand provoked yesterday’s gains.
- Traders Look Ahead to FOMC Rate Decision – Will Janet Yellen give clues on the timing of the next rate hike?
- EUR/USD Exchange Rate Forecast to Hold Losses – ECB’s QE to limit single currency gains
Despite the fact that Eurozone industrial production outpaced expectations, the single currency has declined heavily versus its major peers yesterday. The depreciation was mostly the result of the European Central Bank’s (ECB) asset purchases, but ‘Brexit’ uncertainty and turmoil in Greece are also negatively impacting the Euro.
Today’s Federal Reserve interest rate decision will shake up the currency market despite most analysts predicting inaction. The accompanying press conference will be closely scrutinised, with Chairwoman Janet Yellen’s rhetoric the principle focus.
(Previously Updated 14/06 @ 16:45)
Euro (EUR) Exchange Rates Decline as ‘Brexit’ Fears Elevate Downside Risks
The Euro to US Dollar (EUR/USD) exchange rate softened by around -0.6% on Tuesday afternoon.
‘Brexit’ uncertainty is beginning to have a greater impact on the single currency as the attached risk is causing the Euro to decline, even in times of safe-haven demand. The Euro could be hardest hit by a UK exit from the European Union, especially if other member states decide to hold referendums of their own.
Also weighing on demand for the Euro is comparative US Dollar strength as falling commodity prices and global stock prices caused market sentiment to dampen.
However, domestic data produced some positive results. April’s annual Industrial Production in the Eurozone outpaced the median market forecast 1.4% growth, with the result actually reaching 2.0%.
Writing for the Wall Street Journal, Paul Hannon stated;
‘The rise in output was led by consumer goods, a confirmation that rising household spending has continued to drive the recovery as the jobless rate falls and lower energy prices boost disposable incomes. Figures also released by Eurostat on Tuesday showed employment rose by 0.3% in the first quarter, the same rate of job gains as in the final three months of 2015.’
The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1223.
US Dollar (USD) Exchange Rate Strengthens as Advance Retail Sales has Muted Impact
As traders awaited Tuesday afternoon’s US Advance Retail Sales data, the US Dollar strengthened versus the majority of its currency rivals. May’s Advance Retail Sales figure is expected to advance by 0.3%. However, the data bettered estimates with 0.5% sales growth. This had minimal impact on the US Dollar, however, which actually cooled from intraday highs in the immediate aftermath of the result.
The initial US Dollar appreciation can be linked to a combination of safe-haven demand and a weak single currency. In addition, traders have been taking advantage of the USD’s comparatively low trade weighting after steep depreciation yesterday.
The major event in the US data docket this week is the Federal Open Market Committee (FOMC) interest rate decision on Wednesday.
Whilst very few economists expect Fed policymakers to consider altering policy amid domestic political uncertainty and ahead of the major geopolitical event that is the UK’s EU referendum, there is potential for the accompanying press conference to reveal clues as to policymaker outlook.
Analysts at Bank of America Merrill Lynch predict that the Fed will hike the official cash rate in September, stating;
‘Between weaker May jobs data and uncertainty ahead of the UK referendum on EU membership, the markets have completely priced out any chance of a June rate hike. We concur, as this will give the Federal Open Market Committee (FOMC) more time to reassess global risks and incoming US data. While we cannot completely rule out a July hike, the hurdle for a quick improvement in the data and supportive financial conditions is relatively high. Our base case remains a September rate hike.’
The Euro to US Dollar (EUR/USD) exchange rate dropped to a low of 1.1207 during Tuesday’s European session.
EUR/USD Exchange Rate Forecast: FOMC Rate Decision to Provoke Volatility
This week’s European economic docket is comparatively sparse of influential data publications. With that in mind, the EUR/USD exchange rate is likely to see movement in response to US data.
The principle focus for traders will be the FOMC interest rate decision, but US Consumer Prices data will also be of significance.
As we draw closer to the EU referendum the Euro is likely to be subject to greater impact from developments, especially if it becomes increasingly apparent that the UK will vote to leave.
In addition to the high likelihood of the Euro softening in response to a ‘Brexit’, the resultant safe-haven demand will also significantly weigh on the EUR/USD exchange rate.
The Euro to US Dollar (EUR/USD) exchange rate reached a high of 1.1299 during Tuesday’s European session.