Euro to US Dollar (EUR/USD) Exchange Rate Rises 0.4% on ECB Meeting Speculation

September 12, 2018 – Written by James Fuller

The Euro opened trading against the US Dollar at a level of $ 1.1594 on Tuesday and closed fractionally higher in the region of $ 1.1599.

Euro to US Dollar Exchange Rate (EUR/USD) Rises 0.4% ahead of Key Eurozone Data Day

The Euro (EUR) has pre-emptively risen against the US Dollar (USD) today, hitting an exchange rate of $ 1.1644.

This appreciation comes ahead of a key European Central Bank (ECB) monetary policy meeting on Thursday afternoon, which might be enough to trigger greater EUR/USD exchange rate gains.

Eurozone data hasn’t been very supportive so far today, with July’s Eurozone-wide industrial production figures showing a slowdown on the monthly and yearly readings.

In other news, European Commission President Jean-Claude Juncker has pressed leaders of Eurozone nations to make the Euro a rival of the US Dollar, saying:

‘We will have to change that. The euro must become the active instrument of a new sovereign Europe.

‘It is time to put an end to the state of a sorry spectacle of a divided Europe. Our continent deserves better.’

Dovish Outlook from Fed Policymaker Pushes US Dollar to Euro Rate (EUR/USD) to €0.85

A cautious outlook from a Federal Reserve official has weakened the US Dollar (USD) today, leading to a decline against the Euro (EUR) and greater losses elsewhere.

This deterioration in the USD/EUR exchange rate comes from recent comments made by the Fed’s James Bullard, who has spoken about current Fed interest rates.

While not a voting member at the US central bank this year, Mr Bullard has still influenced US Dollar demand with his relatively cautious remarks. Mr Bullard said of current US interest rates that:

‘Handled properly, current financial-market information can provide the basis for a better forward-looking monetary-policy strategy.

‘Subdued market-based expectations suggest that the current monetary-policy stance is already neutral or possibly somewhat restrictive’.

The keyword here is ‘restrictive’, as it suggests that Mr Bullard believes that the current Fed interest rate (2%) might already be too high.

This conflicts with current market expectations – USD traders are looking for signs of two more rate hikes this year, to go alongside the two seen in prior months.

The fact that the US Dollar has dropped today despite Mr Bullard’s non-voting status shows just how anxious USD traders are about seeing more interest rate hikes in the future.

EUR/USD Forecast: Are Euro to US Dollar Exchange Rate Losses ahead on Slower German Inflation?

The Euro (EUR) is at risk of initially declining against the US Dollar (USD) on Thursday, as the first data release of the day will be a potentially disappointing German inflation rate reading.

August’s finalised figure is predicted to show a slowdown for the month-on-month reading, with a shift from 0.3% to 0.1%.

Although minor on paper, such a slowdown could still unsettle Euro traders and cause losses against the US Dollar because of its implications.

Falling German inflation might mean that the Eurozone-wide inflation rate slows down – this might ultimately mean that there is a reduced chance of an early European Central Bank (ECB) interest rate hike in 2019.

Speaking of the ECB, the bank will be holding a monetary policy meeting on Thursday afternoon which might restore any lost confidence from the German inflation data.

If policymakers (specifically ECB President Mario Draghi) back an early 2019 interest rate hike then the Euro could rally against the US Dollar.

Thursday’s later US data will cover inflation rate changes in August – expectations are for slower year-on-year price growth but a slight month-on-month rise.

If both readings rise beyond forecast levels then the US Dollar could also appreciate, not least because higher inflation will put more pressure on the Fed to raise interest rates this year.

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TAGS: Euro Forecasts