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Slowing Eurozone Inflation Brings Euro to US Dollar Exchange Rate Drop

Euro to US Dollar Exchange Rate Declines after Eurozone Inflation Slowdown

The Euro has fallen by -0.3% against the US Dollar (EUR/USD) today, following the news that Eurozone inflation has fallen in December.

The base, finalised, annual figure dropped from 1.5% to 1.4% as forecast, while a month-on-month rise failed to inspire Euro traders.

Rising construction output has also been ignored, as Euro traders consider the effects of lower inflation on the odds of a European Central Bank (ECB) interest rate hike.

The ECB is less likely to consider higher interest rates if inflation is falling, but traders have long hoped for interest rates to rise from their present 0%.

Fears for German Coalition Breakdown Weigh on EUR/USD Rate

Another factor preventing a Euro to US Dollar rally today has been recent news of objection to ongoing German coalition talks.

German Chancellor Angela Merkel has been trying to form a ‘grand coalition’ between her CDU/CSU union and the SPD Party, but there are signs of discontent on the SPD side.

Divisions between SPD members have flared up in recent days, with two regional branches of the party rejecting leader Martin Schulz’s plans.

The main issue is the perception that a grand coalition will unduly favour the CDU/CSU; that said, the three parties have maintained such coalitions on two occasions before.

US Dollar to Euro Exchange Rate Rises ahead of Fed Speeches

There hasn’t been much supportive data out of the US recently, so the latest US Dollar to Euro (USD/EUR) exchange rate rise could be down to hopes for Fed interest rate hikes.

Officials from the Federal Reserve, the US’s central bank, will be making statements over this evening.

Supportive comments may be interpreted as a sign that the US economy could be ready for interest rate hikes in 2018; current forecasts are for three if not four.

Euro to US Dollar Forecast: German Coalition Talks could Dominate EUR/USD Exchange Rate

Most of the week’s major Eurozone announcements are now out, but the Euro to US Dollar exchange rate could still be affected by fresh developments in German coalition talks.

A crucial hurdle on the horizon is the SPD Party vote on 21st January.

During the party congress, members will vote on whether to move ahead with formal negotiations with the CDU/CSU union.

In the event that the party as a whole rejects a grand coalition, the Euro could drop sharply against the US Dollar and its other regular peers.

A rejection wouldn’t be the end of the world, but could lead to another bruising federal election or a weak CDU/CSU minority government.

For those interested in trading the US Dollar, it will be worth watching out for Friday afternoon’s University of Michigan consumer sentiment reading.

The initial reading for January is forecast to show a minor upgrade from 95.9 points to 97, which could lead to a slight US Dollar appreciation.