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Euro Exchange Rate (EUR/GBP, EUR/AUD, EUR/NZD, EUR/USD) Forecast: Eurozone Core Inflation Drops to 0.5%, Unemployment Rate Lowers

European Central Bank

The Euro exchange rate could soften against majors such as the Pound Sterling (EUR/GBP), Australian Dollar (EUR/AUD) and New Zealand Dollar (EUR/NZD) after Eurozone inflation fell further than forecast.

The core measure was expected to remain at 0.7% in January year-on-year. However, the actual figure took a drop to 0.5% while the non-core measure fell even further into deflation from -0.2% to -0.6%.

However, the Eurozone Unemployment Rate fell from 11.4% from 11.5%.

Earlier… The Euro exchange rate recorded gains against the Pound (EUR/GBP), Australian Dollar (EUR/AUD) and New Zealand Dollar (EUR/NZD) after German Retail Sales took a surprising upswing.

Economists had forecast the German ecostat to rise to 3.6% from -1.0%, instead the actual figure hit 4.0%.

Earlier… The Euro exchange rate advanced against the Pound Sterling (EUR/GBP), the Australian Dollar (EUR/AUD) and New Zealand Dollar (EUR/NZD) despite a fall in inflation for the currency bloc’s largest economy, Germany.

Inflation fell from +0.2% to -0.3% marking the first fall into disinflation since 2009.

Earlier… The Euro exchange rate advanced against the Pound Sterling (EUR/GBP), Australian Dollar (EUR/AUD), New Zealand Dollar (EUR/NZD) and US Dollar (EUR/USD) on Thursday morning after German Unemployment Rate figures fell to 6.5% in January after being negatively revised to 6.6% in December.

In addition, Wednesday saw the US Dollar reach highs against other currency majors when the Federal Reserve remained upbeat in its latest interest rate decision statement.

Currency strategist Sam Tuck commented: ‘With central banks everywhere easing or shifting their biases in that direction, markets are highly sensitive to the global risk factors, and what it does translate to is a desire to be in a safe asset such as the US Dollar.’

Earlier… The Euro exchange rate fell against the Pound Sterling (EUR/GBP), Australian Dollar (EUR/AUD), New Zealand Dollar (EUR/NZD) and US Dollar (EUR/USD) during Wednesday’s European trading, ahead of the Eurozone’s potentially devastating inflation and unemployment data on Thursday and Friday.

The last few weeks have made for exciting trading with the fall in oil prices (and consequently inflation) prompting world-wide central bank; but is there more to come?

Wednesday will see the Federal Open Market Committee (FOMC) deliver its interest rate decision, an event that’s encouraging heavy speculation.

Industry expert Camilla Sutton commented: ‘The combination of having disinflationary pressure building as well as a shift in the voting members of the FOMC board to a slightly more dovish bias have all played into market psychology, but all in all, we’re likely to see no major shift in policy stance from the Fed.’

After weaker US figures this week,- notably Durable Goods Orders contracting by -3.4% – a lot of economists have turned into doves and suggested that the Fed may not be hiking interest rates this year at all.

Additionally fears of a global slowdown have to be paired, with the European Central Bank’s (ECB) scheduled quantitative easing (QE) programme and the Bank of Canada’s (BOC) recent interest rate cut.

Chief market analyst Omer Esiner commented: ‘The risk for the Dollar is that the FOMC might sound a little more concerned with regard to the global economy, the impact of low energy prices on their inflation forecast, and the potential impact of the very strong Dollar on the economy and the very low wage backdrop.’

Esiner could be right, and a language change could be on the cards for the Federal Reserve policymakers. A more dovish tone could pressure the US Dollar exchange rate significantly lower.

Esiner continued: ‘A slightly more cautious tone to the statement tomorrow would effectively push out the time line for an eventual rate hike and that has been one of the pillars of the Dollar’s rally.’

So a lower US Dollar could come into play after Wednesday’s FOMC announcement; and if it doesn’t, it has potential to on Friday. Annual US Gross Domestic Product (GDP) is expected to slip from 5.0% to 3.0%.

Meanwhile, Wednesday won’t just see the US Dollar influenced by the FOMC decision; the Reserve Bank of New Zealand (RBNZ) is announcing its own interest rate decision shortly after. Will this gathering herald the end of the present rate hiking cycle?

After aggressively hiking interest rates throughout 2014 and assuring investors the rate hikes will pick up again as soon as the economy allows, the RBNZ could signal a period of stability in rates on Wednesday.

The New Zealand and Australian Dollars both fell on the news of the recent BOC surprise rate cut as investors forecast the Trans Tasman nations will be the next to adjust policy. While the Reserve Bank of Australia (RBA) is shrouded in speculation as to whether Governor Glenn Stevens will in fact slash rates, investors are more certain in their RBNZ expectations.

Industry expert Grant Hassell commented: ‘Personally, I think there’s a chance that this might be it for this part of the tightening cycle.’

The RBNZ may remain steady but the RBA could be in for cuts, Westpac are forecasting lower interest rates as soon as February.

However, Australia released inflation data on Wednesday which has led some economists to believe the RBA may hang fire for a moment.

A weakening Australian Dollar, coupled with 1.7% inflation (falling below 1.8% forecasts from 2.3%) may be enough to keep interest rates steady. However, others think falling inflation could further encourage the RBA to cut rates.

Industry expert Peter Ryan commented: ‘Economists are looking at what might make the RBA think twice based on the official data: Headline inflation in the December quarter of just a third of 1%, according to the estimates; an annualised headline inflation of 1.8% – and that’s below the RBA’s target bank of 2 to 3%.’

‘This points to scope for the RBA to pump more money into the economy, which does appear to be slowing.’

Meanwhile, the UK is experiencing a quiet data day after Gross Domestic Product figures failed to reach economists’ forecasts on Tuesday. UK GDP reached 2.7% in Q4 2014 year-on-year, just a shade below 2.8% forecasts.

Although the ecostat wasn’t as impressive as economists had hoped, the UK recorded the fastest pace of growth in the past seven years over 2014 as a whole.

Euro (EUR/USD, EUR/GBP, EUR/AUD, EUR/NZD) Exchange Rate Forecast

This week, a lot of movement will be determined by central bank actions and the Euro may fluctuate in response to global interest rate decisions.

In addition, Thursday and Friday will be highly significant days for Euro trading, with the release of German and Eurozone Consumer Price Indexes and Unemployment Rate numbers.

Any unfavourable data could pile additional pressure on the Euro exchange rate, causing broad-based softening.

The Euro to Pound Sterling (EUR/GBP) exchange rate is presently trending in the region of 0.7473. The Euro to Australian Dollar (EUR/AUD) exchange rate experienced market movement of -0.50% and resides at 1.4281. The Euro to New Zealand Dollar (EUR/NZD) exchange rate is hovering at 1.5223. The Euro to US Dollar (EUR/USD) exchange rate resides at 1.1366.