Euro to US Dollar Exchange Rate Advances to Two-Week-High on Central Bank Speculation
Despite underwhelming Eurozone data over the past week or so, hawkish comments from a European Central Bank (ECB) official have been enough to make the Euro to US Dollar (EUR/USD) exchange rate appealing this week.
Could EUR/USD be in for a week of gains? The pair opened this week at the level of 1.2285 and has since climbed to a fortnight high of 1.2385. At the time of writing, EUR/USD was trending above last week’s levels, having recovered its losses.
Hopes that the US and China could work together to avoiding a potential ‘trade war’ between the nations have supported both the Euro (EUR) and the US Dollar (USD), but the Euro has benefitted more due to central bank speculation.
Tuesday saw ECB policymaker Ewald Nowotny suggest that the ECB’s deposit rate could rise at a faster rate than expected as the bank winds down its quantitative easing (QE) measures.
He suggested that the bank could raise deposit rates before adjusting the main interest rate at a later date.
His comments pushed the Euro higher on Tuesday. The currency’s gains were limited by ECB comments distancing themselves from Nowotny’s views, but EUR/USD still put in solid gains on Tuesday and continued to climb on Wednesday morning.
Euro (EUR) Exchange Rates Weighed by Mixed Eurozone Data
The Euro could have seen stronger gains against the US Dollar over the past week, but its strength has been limited by underwhelming Eurozone economic data.
Last week’s Eurozone PMIs largely fell short of market expectations, indicating that the Eurozone’s economy was cooling down from its strong 2017 growth quicker than expected.
French and Italian industrial production data from February was underwhelming on Tuesday, worsening speculation that the Eurozone’s economy isn’t performing as strongly as hoped this year so far.
German import and export stats disappointed investors at the beginning of the week. However, the disappointment was partially offset by hopes that the US and China would avoid a ‘trade war’.
Euro demand was little changed by Wednesday’s data. Italian retail sales beat expectations slightly month-on-month, but the yearly figure only lightened slightly from -0.8% to -0.6%.
US Dollar (USD) Fails to Find Support in Data on Top of Trade Hopes
While the US Dollar has been supported in recent sessions by hopes that the US and China could work through trade disagreements, the Euro has benefitted from this too.
In comparison, the US Dollar has been held back by underwhelming US ecostats weighing on market hopes for a more hawkish Federal Reserve this year.
Last Friday’s US Non-Farm Payroll results fell short of forecasts in many key prints. As a result, investors saw no new reason to believe the Fed would hike US interest rates four times in 2018 rather than the expected three.
With Fed interest rate hike bets stagnant, US Dollar investors are hesitant to buy the currency ahead of major data due in the coming days.
Euro to US Dollar Forecast: EUR/USD Outlook Could be Influenced by Inflation Data
Inflation data due in the coming sessions could influence central bank speculation and the Euro to US Dollar (EUR/USD) exchange rate outlook.
US Consumer Price Index (CPI) data will be published during Wednesday’s American session, followed by the Federal Reserve’s latest meeting minutes in the evening.
This could give US Dollar investors plenty of ammo for central bank speculation. If US inflation beats expectations and the Fed is more hawkish than expected, Fed interest rate hike bets will likely rise.
However, after European Central Bank (ECB) policymaker Nowotny’s comments this week, any signs of strong Eurozone inflation could make the Euro much more appealing too.
As a result, Thursday’s French inflation results, as well as German and Spanish inflation on Friday, could influence the Euro towards the end of the week.
If ECB interest rate hike bets rise for any reason, EUR/USD could extend its recent gains and the mid to long-term outlook for the pair would be higher too.