Despite a lack of Federal Reserve interest rate hike bets, the Euro US Dollar exchange rate has tumbled from this week’s highs ahead of the key European Central Bank (ECB) meeting. The US Dollar has benefitted from Bank of Japan (BoJ) news, leaving EUR USD down near 1.1505, below this week’s 14-month-high of 1.1581.
Euro (EUR) Limp as Investors Anticipate European Central Bank (ECB)
The Euro has seen little inspired movement this week. Eurozone ecostats have failed to impress investors and markets are generally anticipating this week’s European Central Bank (ECB) policy decision before making any moves on the shared currency.
Markets widely expect the ECB will leave monetary policy frozen during Thursday afternoon’s meeting. At most, traders hope the bank will leave hints on forward guidance during the policy statement or ECB President Mario Draghi’s press conference.
If the ECB indicates it plans to end its quantitative easing (QE) program within the foreseeable future, the Euro will surge towards the end of the week and could near its recent best levels against the US Dollar.
On the other hand, if the bank indicates it would rather leave QE in place until it is more confident in the strength of Eurozone inflation, the shared currency could shed most of this week’s gains.
EUR USD may simply continue on its current trajectory if the bank hesitates showing any change in tone.
Either way, the tone the ECB takes in today’s meeting will essentially set the overall tone for the next few months of Euro trade.
Next week’s preliminary Eurozone PMIs from July, Ifo business confidence surveys and French growth results will be the next major influences for Euro movement after the ECB meeting is over.
US Dollar (USD) Benefits from Japanese Yen (JPY) Selloff
The US Dollar finally saw a boost in demand towards the end of the week, as investors bought it after selling its rival, the Japanese Yen (JPY).
The Yen was sold off as markets reacted to a dovish tone from the Bank of Japan (BoJ). The bank cut its inflation forecasts and noted that it was willing to further loosen monetary policy if necessary.
In its policy statement, the BoJ noted that ‘risks to the economy and price outlook are skewed to the downside’, leaving the Yen highly unappealing.
JPY traders poured into USD following the bank’s report. This boosted the ‘Greenback’ against most of its major rivals, including the Euro.
Domestic support for the US Dollar has been limited so the BoJ news led to the currency’s biggest boost all week.
Caution from Federal Reserve officials and roadblocks in US Congress’ attempts to pass new healthcare laws have left the US Dollar weak overall. Wednesday’s strong June housing data wasn’t enough to improve Fed rate hike bets or improve USD demand.
The biggest news on the horizon for ‘Greenback’ traders will be next week’s US Q2 Gross Domestic Product (GDP) projections. Any comments from Fed officials over the next week also have the potential to influence US Dollar movement.
Investors will be focused on any news that affects Fed rate hike bets. If the US economic outlook improves or Fed officials take more hawkish stances again, the US Dollar outlook will be higher.
EUR USD Interbank Rate
At the time of writing, the Euro US Dollar exchange rate trended in the region of 1.1505. The US Dollar to Euro exchange rate traded at around 0.8690.