- EUR USD rate rises to 1.1757 – USD EUR rate slides to 0.8503
- Euro firms on PPI stats – Higher hopes of higher inflation
- US Dollar dips on Fed comments – Uncertainty about December rate hike persists
- Further Euro gains possible on sales stats – US Dollar volatility possible on jobs data
Monday saw the Euro slide against the US Dollar, though mainly because of strong US manufacturing data.
Higher PPI Stats Raise Hopes for Rising Eurozone Inflation
Today’s source of Euro support has been a pair of producer price indexes (PPIs), which have shown growth in August.
On the month, a rise from 0% to 0.3% has been recorded, while a greater annual increase from 2% to 2.5% has also been seen.
Both of these results mean that prices are rising across the Eurozone, which in turn means that inflation could also rise in the future.
Higher inflation raises the chances of European Central Bank (ECB) monetary policy tightening, which is why this news has been so supportive to the Euro.
US Dollar Declines on Mixed Fed Signals
After a speech on Monday from Fed official Robert Kaplan, the US Dollar has slipped against the Euro.
The primary problem was that Kaplan did not unambiguously support higher interest rates, instead stating that the Fed needed to ‘look hard’ at the notion of a December rate hike.
In other news, Fed official Jerome Powell has been giving a speech about US regulatory reform. While not an immediately interesting issue, this has precedence because it could affect the risk of another financial crisis.
Powell has been cautious in his outlook, stating that stress testing should be maintained on US banks.
It is worth remembering that deregulated banks were a significant factor in the late 2000’s financial crisis, when unsustainable loans and mortgages caused massive economic instability.
EUR USD Forecast: Euro could Firm on PMI and Sales Figures
After respectable trading today, the Euro could be poised to make further gains if Wednesday’s data proves positive.
Opening data will consist of German and Eurozone-wide services stats, as well as composite measures for activity in September. In all fields, higher activity is forecast.
The other good news may come when Eurozone retail sales figures are released. Covering August, these are expected to show a month-on-month improvement from -0.3% to 0.3%.
Traders also believe there is a chance of the year-on-year figure rising from 2.6% in July to 2.8% in August.
From the US, Wednesday’s main news will be a measure of employment for September and a non-manufacturing PMI for the same month.
Employment is tipped to show a 130k rise, while a minor increase in non-manufacturing activity has also been forecast.
Later in the day, Federal Reserve Chair Janet Yellen will give a speech. The Fed Chair could trigger major USD volatility, if she gives any indication of US monetary policy tightening in the future.
Yellen has previously given mixed signals, stating that while caution is always necessary, the central bank should also ‘be wary of moving too gradually’.
If she appears to commit to higher interest rates in the future, the US Dollar may appreciate.
Current Interbank EUR USD Exchange Rates
At the time of writing, the Euro to US Dollar (EUR USD) exchange rate was trading at 1.1757 and the US Dollar to Euro (USD EUR) exchange rate was trading at 0.8503.