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US Dollar to Euro (USD/EUR) Exchange Rate Forecast: Upbeat Federal Reserve May Still Hike Rates This Year

The US Dollar to Euro (USD/EUR) exchange rate remained in a narrow range as Thursday’s session began after Wednesday’s Federal Reserve statement regarding interest rates.

The US is currently one of the only viable central banks to increase interest rates this year, therefore the US Dollar has remained quite popular.

One trader stated: ‘They [the Federal Reserve] can sit back for a couple more months to see what happens with the Dollar, oil and inflation. And after what happened last week [at the European Central Bank and the Swiss National Bank], the Fed was smart not make any waves today.’

Earlier… The US Dollar to Euro (USD/EUR) exchange rate strengthened on Wednesday ahead of the US Federal Open Market Committee (FOMC) statements.

The Federal Reserve policymakers could give some insight into the time frame for US interest rate hikes and therefore Wednesday could be an influential day for US Dollar trading.

The US Dollar to Euro (USD/EUR) exchange rate fell dramatically in the second half of Tuesday’s European trading after US Durable Goods Orders contracted by -3.4% in December.

Economist Chris Low stated: ‘A global slowdown, strong Dollar and weakness in the oil sector all likely contributed to orders weakness in the second half of last year.’

Tuesday has been a mixed day for US ecostats with the Consumer Confidence index leaping far higher than expected to 102.9 from 93.1.

Earlier… The US Dollar to Euro (USD/EUR) exchange rate declined in the early part of Tuesday’s European session as the Single Currency regained losses after falling to an 11-year low, following Sunday’s Syriza election win.

The Euro softened broadly on the news that the anti-austerity party Syriza had made it to power, only two seats short of a majority. Syrzia wish to renegotiate the debt repayments which have contributed to the Greek economy’s deteriation and allowed the unemployment rate to climb to 25%.

Euro (EUR) Exchange Rate Rises as Grexit Appears Off the Cards

However, since the Syriza victory, economists believe the anti-austerity party will be able to negotiate a debt deal without causing a Grexit.

Foreign exchange strategist Matt Derr, commented: ‘They don’t seem to have what I’d view as a far-left goal—it’s not like they’re going to come out and default on all their debt. The Euro is getting a bit of a relief rally.’

However, one of the main factors that could weigh on the Euro exchange rate is the recent announcement by the European Central Bank (ECB) that quantitative easing (QE) will commence in March.

US Dollar to Euro (USD/EUR) Exchange Rate Forecast

Meanwhile, the US Dollar to Euro (USD/EUR) exchange rate could fluctuate on the release of US Durable Goods Orders later in Tuesday’s session. At present, forecasts expect to see 0.3% growth in December after November’s negatively revised -0.9%.

US Consumer Confidence is also scheduled for release and could bolster the US Dollar if it prints in line with forecasts. The index is expected to see an upswing in January from 92.6 to 95.0.

Investors are presently pricing in Federal Reserve interest rate hikes before other major economies, a factor that’s kept the US Dollar buoyant.

However the bullish US Dollar has caused concern among some economists that a bubble could be forming.

Economist Jan Dehn stated: ‘The current strength of the Dollar is evidently a bubble. If you doubt that the Dollar is a bubble, ask yourself this question: when was the last time you met someone who was not bullish the Dollar?’

This week could be highly influential for Euro trading with the release of German and Eurozone Consumer Price Indexes (CPI) and Unemployment Rate stats on Thursday and Friday. We forecast that any favourable Eurozone figures toward the end of the week could offer more strength to the Euro to US Dollar (EUR/USD) exchange rate.

Furthermore, Friday is expected to see US Gross Domestic Product (GDP) growth decline in Q4 of 2014 from 5.0% to 3.0% and could pressure the US Dollar lower.

The Euro to US Dollar (EUR/USD) exchange rate resides at 1.1284. The US Dollar to Euro (USD/EUR) exchange rate is reaching 0.8866.