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Unexpectedly Relaxed European Central Bank Leaves Euro to US Dollar Exchange Rate Surging

Euro to US Dollar Exchange Rate Recovers September Losses in ECB Aftermath

The Euro (EUR) experienced a jump in demand following today’s European Central Bank (ECB) policy decision, and the Euro to US Dollar (EUR/USD) exchange rate recovered much of its recent losses as a result. Meanwhile the US Dollar (USD) was pressured by US job stats.

At the beginning of the month, EUR/USD touched on a two year best level of 1.2000. EUR/USD quickly recoiled from those highs and has spent most of the past week falling.

However, after falling from the level of 1.1838 to touch on a monthly low of 1.1756 yesterday, EUR/USD has recovered again. Yesterday evening’s recovery was modest, but today alone the pair has surged around a cent.

At the time of writing, EUR/USD is trending near highs of 1.1906. If the pair can sustain these gains, it will mean EUR/USD has recovered all of this month’s losses so far.

Some German and US inflation data is due for publication tomorrow. However, continued reaction to European Central Bank news may remain more influential for the Euro to US Dollar exchange rate.

Euro (EUR) Exchange Rates Jump as European Central Bank (ECB) Unexpectedly Optimistic

Investors bought the Euro today, as the European Central Bank’s (ECB) September policy decision was far less dovish than markets expected.

It was broadly speculated that the ECB would attempt to talk down the Euro, which has recently been highly strong. However, not only did the bank leave policy frozen and not signal any fresh stimulus, the bank also hesitated to criticise the Euro’s strength.

On top of this, the bank also played down deflation concerns and raised its 2020 growth forecasts. The Euro surged in response to the bank’s surprisingly relaxed stance.

Seema Shah, Chief Strategist at Principal Global Investors, said:

‘Markets know that there is very little that the ECB can actually do to weaken the currency. Rates as almost as low as they can possibly go and the various asset purchase and lending programs are already sizable. What’s more, the Euro is strengthening for all the right reasons: improving growth, relatively contained COVID infection rates, and positive developments in the fiscal stimulus region.’

US Dollar (USD) Exchange Rates hit by US Economic Uncertainty as Jobless Data Disappoints

The US Dollar has been rebounding from lows for much of the past week. However, the currency’s rebound slowed yesterday, and today’s news has once again left the US Dollar weaker.

Not only was the US Dollar knocked lower by gains in its biggest rival, the Euro, it was also weakened by the latest US jobless claims data.

Rather than lowering as forecast, US jobless claims were even higher in this week’s dataset. It worsened concerns that the US job market was not recovering from the pandemic as hoped.

Initial jobless claims rose to 881k rather than lowering to the forecast 846k.

Euro to US Dollar (EUR/USD) Exchange Rate Awaits Inflation Data, More ECB Comments

Markets will continue to digest today’s European Central Bank (ECB) developments towards the end of the week.

If the ECB’s comments are reinterpreted as dovish, the Euro could shed some of today’s gains.

On the other hand though, the Euro could see continued strength and hold its gains against the US Dollar if there are no surprises or shifts in sentiment.

Surprises are possible however. If tomorrow’s German inflation rate data or comments from ECB officials shock investors, this could also knock the Euro.

ECB President Christine Lagarde will be holding a speech this evening. ECB Chief Economist Philip Lane, who previously criticised the Euro’s strength, will be holding a speech tomorrow.

If there are no shifts in the Euro’s strength, the US Dollar could still see some late-week movement if upcoming US inflation data surprises investors.

Of course, Euro to US Dollar (EUR/USD) exchange rate investors will remain focused on potential coronavirus and political developments as well.