Federal Reserve Minutes Knock Euro to US Dollar Exchange Rate to Weekly Low
Following the publication of the latest Federal Reserve meeting minutes on Wednesday evening, the Euro to US Dollar (EUR/USD) exchange rate tumbled to weekly lows and the US Dollar (USD) outlook rose.
EUR/USD has now lost most of last week’s gains as it continues to rebound from the three-year-high of 1.2552 seen last Friday. The pair tested a weekly low of 1.2294 on Thursday morning.
As well as investors opting to buy the US Dollar from its cheapest levels, EUR/USD has also been pushed lower by market confidence that the Federal Reserve will hike US interest rates at least three times in 2018.
In the Federal Reserve’s January meeting minutes, the report detailing the final Fed decision headed by ex-Chairwoman Janet Yellen, policymakers took a notably more upbeat tone than they had in late 2017.
Policymakers were more confident that US inflation would strengthen in the coming months and support more interest rate hikes, and policymakers had also upgraded their economic outlook forecasts since December.
According to Chris Turner from ING Bank;
‘The release of the FOMC (Federal Open Market Committee) minutes has given the Dollar a small lift, with confidence expressed that activity and inflation was moving on the right path to merit further gradual rate hikes,’
Expectations of a more hawkish Fed and a stronger US economic outlook have bolstered the US Dollar outlook too.
Euro (EUR) Exchange Rate Support Limited as Eurozone Data Disappoints
Demand for the Euro (EUR) has been little changed throughout the week, as the US Dollar recovery as well as some underwhelming Eurozone ecostats have left the shared currency limp.
Thursday’s Eurozone data largely fell short of expectations. For example, French business confidence slowed from 114 to 112, while France’s yearly inflation rate missed the forecast 1.4% by only edging higher to 1.3%.
Germany’s February business confidence survey stats from Ifo were disappointing too, coming in lower than forecast in every major print.
Current conditions slowed from 127.8 to 126.3, expectations from 108.3 to 105.4, and the key business climate print from 117.6 to 115.4.
However, despite the data being underwhelming it was still generally strong and indicated that the Eurozone was still on track for strong growth in Q1 2018.
Euro to US Dollar Forecast: Eurozone Inflation Could Alter EUR/USD Outlook
US Dollar movement is likely to continue being driven by Federal Reserve speculation and market risk-sentiment towards the end of the week amid a lack of influential US ecostats due for publciation.
As a result, investors will be paying close attention to any comments from Fed officials. Multiple speeches from Fed officials will be held during Friday’s American session, including ones from Dudley, Mester and Williams.
If these do not influence the US Dollar, the Euro could drive EUR/USD instead. Friday will see the publication of key Eurozone data, including Germany’s final Q4 Gross Domestic Product (GDP) results and the Eurozone’s final January inflation figures.
Analysts predict that German growth will come in at 2.9% year-on-year, but if the figure beats expectations and prints at 3.0% or higher the Euro could strengthen.
As for Eurozone inflation, signs that price pressures in the bloc are higher than expected would boost bets of a more hawkish European Central Bank (ECB) in the coming months.
On the other hand, if Eurozone inflation falls short of expectations, investors could become concerned that price pressures are even more subdued than the bank predicted, which could notably dampen the Euro to US Dollar (EUR/USD) exchange rate outlook.
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