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Mixed ECB Outlook Triggers Euro to US Dollar Decline

The Euro has fallen against the US Dollar after news from the European Central Bank (ECB) today. This decline comes as traders process two high-impact interest rate decisions.

  • EUR USD rate drops to 1.1817 – USD EUR trades higher at 0.8459
  • Euro slips despite Draghi optimism – ECB President upgrades GDP and inflation outlook
  • US Dollar rises as Fed hikes interest rates – Yellen cautious about tax plans
  • Euro trade surplus tipped to decline – Will USD strengthen on production stats?

The US Dollar has been a more stable option for investors, in the wake of a Federal Reserve interest rate hike.

Euro to US Dollar Rate Dips on Cautious ECB Inflation Outlook

The Euro has lost ground to the US Dollar today, owing to trader uncertainty about future European Central Bank (ECB) decisions.

As expected, the ECB left rates at 0% during its last interest rate meeting of the year. Traders were more interested in ECB President Mario Draghi, who gave an outlook on the Eurozone in the coming years.

For 2018 and 2019, GDP estimates were upgraded from 1.8% to 2.3% and from 1.7% to 1.9% respectively.

The ECB also upgraded its inflation forecasts, but predicted that the 2% target won’t be hit in 2020.

USD/EUR Exchange Rate Improves after Rate Hike and Sales Growth

The US Dollar has seen a small rise against the Euro today, thanks to a Fed interest rate hike and rising retail sales.

In the former instance, the US central bank has raised interest rates from 1.25% to 1.50% as expected.

Giving a brief but positive summary of the economy at present, Fed Chair Janet Yellen said;

‘At the moment, the US economy is performing well. There’s less to lose sleep about now than has been true for quite some time’.

Yellen also voiced support for Jerome Powell, the Fed official who will be taking over as Chair in 2018;

‘I am confident that [Powell] is as deeply committed as I have been to the Federal Reserve’s vital public mission’.

In a slightly less positive outlook, Yellen has stated that future tax reforms might not cause dramatic improvements to the economy.

‘[We] are in line with the general expectation that the type of tax changes that are likely to be enacted would tend to provide some modest lift to GDP growth in the coming years’.

With the retail figures, sales have been reported at 5.8% on the year in November, a much better result than forecast.

Euro US Dollar Rate could Fall Further on Sliding Trade Surplus

As the dust settles from today’s ECB event, the Euro may still see some late-week movement from Eurozone trade balance stats out on Friday morning.

Expectations are for a reduction in the overall trade surplus, from 26.4bn to 24.6bn.

This would still leave the Eurozone with an enviably large surplus, but might diminish confidence among Euro traders regardless.

The week’s last notable US data will come on Friday afternoon, when industrial and manufacturing output stats are set for release.

Forecasts have been mixed; experts believe that annual industrial production will rise, but are pencilling in a month-on-month decline.

Annual figures are usually more impactful that monthly ones, so if the yearly manufacturing reading rises then the US Dollar could appreciate.

Current Interbank EUR USD Exchange Rates

At the time of writing, the Euro to US Dollar (EUR USD) exchange rate was trading at 1.1817 and the US Dollar to Euro (USD EUR) exchange rate was trading at 0.8459.