Chance of Greater EUR/USD Exchange Rate Decline on ECB Caution
This leaves the EUR/USD exchange rate at an almost three-week low and follows remarks from European Central Bank (ECB) President Mario Draghi.
Mr Draghi has reiterated his cautious outlook from last week, which is that while monetary policy tightening is incoming, major adjustments are still a long way off.
There may be further Euro losses over the coming days when more ECB policymakers give speeches this afternoon, on Wednesday and on Thursday.
If these officials echo Mr Draghi’s sentiments and back a ‘slow and steady’ approach to monetary policy adjustment, the Euro could slump against the US Dollar.
US Dollar to Euro Exchange Rate Forecast: Will Bank Stress Test Results Boost USD/EUR?
The US Dollar’s (USD) 0.8% rise against the Euro (EUR) could increase later on this week, when the Federal Reserve will publish the results of its latest bank stress test.
This is a series of scenarios designed to test whether the largest banks in the United States are capable of withstanding a sudden economic downturn.
2017’s results saw the major players in the US financial sector pass, but that doesn’t guarantee the same result this year.
Former US Treasury Secretary Lawrence Summers has warned that the stress test might not be an accurate picture of the banking sector’s health, stating:
‘A stress test that claims that if the DOW falls by 60%, unemployment rises to 12%, housing prices decline substantially, GDP declines by 6-7% — and that all of that can happen and no bank will be in serious financial trouble or have any problem of being undercapitalized or illiquid — I kind of think says more about itself than it says about the health of the banking system.
I think it would be a mistake to suppose that all is well.’
Assuming that USD traders take the stress test results at face value, the US Dollar to Euro (USD/EUR) exchange rate could still improve if all banks pass comfortably.
Risk of USD/EUR Exchange Rate Decline on US PMI Slowdown
Looking further ahead, the US Dollar (USD) might drop against the Euro (EUR) on Friday if US PMI data proves disappointing.
Friday afternoon will bring the manufacturing and services sector activity reading for June, along with the overall composite PMI for the same month.
Current estimates are for services sector activity to have slowed, which is expected to contribute to a similar composite PMI slowdown.
Although manufacturing sector activity is predicted to have risen slightly, the services and composite stats might have an overwhelming negative influence on the USD.
If US Dollar traders are worried about a services sector slowdown instead of inspired by manufacturing sector growth, there may be late-week USD/EUR exchange rate losses.