The Euro to US Dollar (EUR/USD) exchange rate plummeted during Thursday’s European session after the Swiss National Bank (SNB) removed the 1.20 cap that ties the Swiss Franc to the Euro.
In a surprise move, the central bank decided to remove the cap that’s been in place for three years, after its initial implementation during the global financial crisis.
Economist George Buckley stated: ‘It’s amazing that such a stoic central bank could end up abandoning such a long held policy with such short shrift. I thought we were out of the situation where central banks surprise so significantly like this.’
SNB President Thomas Jordan defended the central bank’s action stating that the element of surprise was necessary.
EUR/USD Exchange Rate Trending Lower Ahead of German GDP
The Euro to US Dollar (EUR/USD) exchange rate began Thursday’s trading rather bearish ahead of German 2014 Gross Domestic Product (GDP) figures.
The annual ecostat is expected to show the German economy grew by 1.5% in 2014; any figure lower than the forecast could cause further Euro softening.
Meanwhile, the US Dollar has been trending lower against other majors after US Advance Retail Sales took a dive on Wednesday.
Currency expert Colin Crowner stated: ‘The retail sales number came in as a negative surprise.’
The Euro to US Dollar (EUR/USD) exchange rate climbed in the second half of Wednesday’s European session after US Advance Retail Sales figures fell far lower than economists’ had forecast.
Advance Retail Sales contracted by -0.9% in December, a far steeper decline than the forecast -0.1%.
Economist Guy Berger commented: ‘It’s a weak number but it follows some really strong ones and I don’t think it changes my general feelings on how the economy and consumers are doing. Maybe the optimism a month ago got a little too heated.’
Earlier… The Euro to US Dollar (EUR/USD) exchange rate was trending lower in the early hours of Wednesday after European Central Bank (ECB) President Mario Draghi suggested the ECB was ready to begin government bond buying.
The ECB’s next meeting is scheduled to take place on January 22nd and could result in the announcement of quantitative easing (QE). The European Central Bank (ECB) is the only major central bank to not undertake a period of QE since the onset of the global financial crisis.
Other nations like the US which have implemented QE plans have recovered strongly; however, the Eurozone economic recovery has been flat lining and the 19-nation currency bloc entered deflation last week.
Draghi stated that the ECB must ‘keep interest rates low and work towards an expansive monetary policy that accompanies growth.’
It’s no secret that the European Central Bank has seen a divergence amongst policymakers on the topic of monetary policy. However, Draghi suggests that the Council is becoming more united as their options decrease.
Draghi continued: ‘All members of the Governing Council of the ECB are determined to fulfil our mandate. Naturally, there are of course differences over how that should be done, but there aren’t endless possibilities.’
The ECB has implemented less aggressive monetary stimulus measures in the past year which have all failed to kick-start growth in the Eurozone. While economists have speculated that the central bank must be willing to undertake bond buying to encourage growth, the ECB has avoided QE at all costs.
US Dollar Offered Little Support when Fed Minneapolis President Suggests Inflation will stay below 2%
Meanwhile, the US Dollar was offered little support from dovish Minneapolis Federal Reserve President Narayana Kocherlakota who suggested that inflation was likely to stay low for the next few years.
Furthermore, Kocherlakota suggested that more stimulus is necessary in a goal-orientated approach, which he feels would be more suited for the US economy.
Kocherlakota stated: ‘Deciding not to reduce stimulus in 2015 would be consistent with a goal-orientated approach to the employment mandate. Increase in stimulus would push upward on employment.’
Euro to US Dollar (EUR/USD) Exchange Rate Forecast
The US Dollar to Euro (USD/EUR) exchange rate could fluctuate on Wednesday with the release of US Advance Retail Sales figures. At present, forecasts expect to see a -0.1% contraction in December after November’s 0.7% growth.
Furthermore, Retail Sales excluding Autos is expected to stagnate at 0.0% following November’s 0.5%.
The Euro to US Dollar (EUR/USD) exchange rate is trending in the region of 1.1742. The US Dollar to Euro (USD/EUR) exchange rate is residing at 0.8519.