- Euro US Dollar Exchange Rate Fluctuates Around 1.0985 – Sentiment solid for both currencies
- Eurozone PMIs Above Expectations – Hopes that Eurozone has weathered Brexit damage rise
- US Economy Remains in Good Health – But Fed rate hike bets stay low
- Forecast: FOMC Meeting on Wednesday – Markets expect key rate freeze
Euro US Dollar Exchange Rate Yields Losses after Brief Rally
The Euro to US Dollar exchange rate briefly hit a high of 1.1021 on Tuesday as US Dollar sentiment dropped ahead of Wednesday’s key session.
EUR/USD slipped back down towards levels of 1.0985 as investors readjusted ahead of Wednesday’s FOMC decision, but the pair remains slightly above the week’s opening levels of 1.0975.
The Euro was allowed to capitalise briefly in the middle of Tuesday’s European session as investors flocked away from the ‘Greenback’ to other currencies like the Yen and risk-associated currencies amid low Fed rate hike bets.
It is possible that EUR/USD could once again reach above the key level of 1.10 on Wednesday if the Fed adopts a dovish tone on monetary policy despite recently optimistic US data.
(Previously updated 16:51 BST 25/07/2016)
Euro US Dollar Exchange Rate Ends European Session Flatly
The Euro US Dollar exchange rate was unable to sustain any gains or losses throughout Monday’s session, as both currencies remained appealing and reversed fluctuations.
Despite hitting a daily low of 1.0954 and a high of 1.0998, EUR/USD has been largely unable to move far from the week’s opening levels of 1.0975, where it currently trends.
The pair saw little reason to move throughout the day, amid a quiet economic calendar since IFO’s optimistic German business confidence report was published earlier in the day.
(Published 11:01 BST 25/07/2016)
The Euro US Dollar exchange rate fell to its lowest point since March last week as US market bulls reacted optimistically towards the latest US economic news. However, the Euro has remained sturdy since Friday’s news that the Eurozone economy had been more resilient to the UK’s Brexit than expected.
EUR/USD has generally remained low due to the Euro’s close association with the unappealing Pound and increased demand for the safe-haven US Dollar. The pair currently trends in the region of 1.0978 after hitting a four-month-low of 1.0954. The next key movement for the pair is likely to occur on Wednesday, after the July FOMC meeting.
Euro (EUR) Sentiment Sturdy as Eurozone Weathers Brexit Damage
Sentiment towards the Euro has remained pressured for over a month, since Britain’s vote to leave the European Union was announced on the 24th of June.
However, Friday’s session saw some of that pressure relieved as the first post-Brexit flash PMIs were released for Eurozone countries and the Eurozone as a whole.
While there is still a fear within markets that some other EU nations may follow Britain out of the Union following the nation’s vote to Leave, concerns that the Eurozone could face just as much economic damage as Britain (if not more) slightly waned in response to the news.
Germany’s PMI scores were solid across the board, with only Manufacturing dropping (from 54.5 to 53.7) and both Services and Composite scores improving (to 54.6 and 55.3 respectively) despite expectations of a Brexit-influenced drop.
The Eurozone’s overall PMI scores did drop in every print. However, these scores were still better-than-expected, beating bearish forecasts. Manufacturing dropped from 52.8 to 51.9, Services slipped from 52.8 to 52.7 and the Composite print only lost 0.2 points overall, falling from 53.1 to 52.9.
Markit’s Chief Economist, Chris Williamson, specifically mentioned the Eurozone’s ‘surprising resilience’ in Friday’s PMI report. As a result, European Central Bank (ECB) stimulus bets lowered slightly and Euro sentiment improved.
US Dollar (USD) Strengthens on US Economic Health
The dust clouds conjured up in the forex market since Britain’s Brexit vote finally started to clear last week as more and more economies have been publishing data revealing how they have fared since the news.
This was true for the US economy, one of the biggest economies in the world and a driving force in global markets. Economists had recently feared that the Brexit was a big enough downside risk to the world’s economy that it would cause negative shockwaves in the US.
However, last week’s data indicated that the US economy was healthy in June and had been thus far largely been healthier than expected throughout July.
Thursday’s jobless claims data for July beat expectations, following up optimistic June labour data from earlier in the month. Housing sales data was also well above expectations, merely slipping from 1.5% to 1.1% in June despite projections of contracting by -0.9%.
Rounding off the week was Markit’s preliminary July Manufacturing PMI. Like the Eurozone’s, it was optimistic. Unlike the Eurozone’s, the score was a healthy increase from 51.3 to 52.9 – which according to the Markit report made it the sharpest rise in production since November 2015.
Sentiment towards the US economy is now largely optimistic, with some investors now raising their 2016 Fed rate hike bets. Bets of a July hike are still well below pre-Brexit levels however.
Euro US Dollar Exchange Rate Forecast: FOMC Meeting Ahead
Euro US Dollar exchange rate trade may be relatively muted on Monday and Tuesday amid a lack of highly influential data, with investors more likely to be focused on economic and political news.
For example, statements from Federal Reserve officials are likely to influence the US Dollar heavily as July’s Federal Open Market Committee (FOMC) meeting approaches.
Any bullish Fed comments or indications that a Fed rate hike is still on the cards for July would send the ‘Greenback’ soaring.
However, analysts currently expect that this is highly unlikely due to the Fed’s recent ‘wait and see’ stance. Fed policymakers would rather continue to observe the effects of the Brexit and other global ecopolitical issues rather than rush into a rate hike amid uncertainty.
As a result, it is likely the FOMC will leave the key US interest rate frozen when it meets during Wednesday’s American session.
This is likely to cause the US Dollar to drop as investors seek out riskier currencies, but perhaps not by much as markets have already priced in the extremely high chance of a freeze.
The Euro, on the other hand, is likely to be influenced by Thursday and Friday’s Eurozone labour reports as well as preliminary Eurozone inflation figures for July and preliminary Q2 growth.
At the time of writing, the Euro US Dollar exchange rate trended in the region 1.0985, while the USD Euro exchange rate traded at levels around 0.9100.