The Euro US Dollar (EUR USD) exchange rate is strengthening this morning as investors set to make some quick profits in alternative markets ahead of the Fed decision later in the week.
US Dollar (USD) Weakened by Profit Taking
The US Dollar tumbled this morning as a bout of profit taking struck the currency ahead of the Federal Reserve rate decision on Wednesday.
A December rate hike from the US central bank has been widely predicted for months, with the majority of investors having already priced in a 0.25% rise, causing some traders to seek alternative markets to invest in before the meeting.
However also denting the US Dollar is the dour outlook from economists regarding the possibility of further rate hikes from the Fed in 2018 as while some suggest that the current pace of tightening will continues, persistently low inflation and weak wage growth has caused some to question this.
Lee Hardman Currency Strategist at MUFG said;
‘I think this (USD’s decline on Monday) is being driven by the softer earnings data we saw in the payrolls report on Friday which reinforces the Fed’s current policy dilemma, where yes we have solid growth but so far a lack of inflation pressure.’
Euro (EUR) Gains Tempered by Disappointing Italian Retail Data
At the same time the Euro has found it gains clipped today by the release of Italy’s latest retail sales figures.
According to figures published by Italy’s statistics office, Istat sales growth plummeted from 0.8% to -1% in October, performing much worse than a more modest decline to -0.1% that have been forecast by economists and reaching its lowest levels in over a year.
The data showed that both food and non-food products saw a contraction in sales in October with investors fearing that the slow start to the fourth quarter will bode poorly for end of year growth.
EUR USD Forecast: Germany Economic Sentiment to Tumble?
Looking ahead the EUR USD exchange rate may be forced to retreat tomorrow with the release of Germany’s latest economic sentiment index, with economists forecasting that it will have dipped slightly from 18.7 to 18 in December.
Meanwhile the US Dollar may also weaken again on Tuesday afternoon as analysts predict that the latest US PPI data will show that price growth slumped from 0.4% to 0.3% last month.
Current Interbank Exchange Rates
At the time of writing the EUR USD exchange rate was trending around 1.1782 and the USD EUR exchange rate was trending around 0.8485.