In the remainder of Friday’s session, the Euro to US Dollar (EUR/USD) exchange rate felt the full effects of the European Central Bank President Mario Draghi speech. The central banker quelled hopes of a robust rebound and instead commented that he felt the recovery was likely to be lethargic over the coming months.
Draghi did comment on the Eurozone’s monetary policy, stating: ‘If our policy is not effective enough to achieve this [higher inflation], or further risks to the inflation outlook materialise, we would step up the pressure and broaden even more the channels through which we intervene.’
Friday’s session opened with the Euro to US Dollar (EUR/USD) exchange rate trending lower, as European Central Bank (ECB) President Mario Draghi speaks in Frankfurt.
Investors hope that the ECB President will offer clues as to future stimulus measures the bank may use for the flailing Eurozone recovery. The economy is in dire need of a kick-start after producing unfavourable figures for some time. The ECB is also scheduled to announce its three year long term refinancing operation (LTRO) repayments later on Friday.
In Thursday’s session… The Euro to US Dollar exchange rate (EUR/USD) softened late in Thursday’s trading session after US Existing Home Sales rose by 1.5% in October despite forecasts of a -0.4% contraction. Furthermore, US Leading Indicators crept higher by 0.9% after predictions for a 0.6% increase.
The Philadelphia Fed Survey also exceeded expectations quite dramatically when the index rose from 20.7 to 40.8. The figure came as a surprise to economists’ who had suggested the survey would fall to 18.5.
Euro to US Dollar (EUR/USD) Exchange Rate robust Amid US Data Releases
The Euro to US Dollar (EUR/USD) exchange rate managed to remain robust in the later half of the European session when US inflation remained steady at 1.7% despite economists’ forecasts to fall.
The US economy saw more slack than expected in the labour market on Thursday when Initial Jobless Claims reached 291K after a 284K forecast. Moreover, the previous figure had also been above forecasts at 293K. US Markit Manufacturing also fell to only 54.7 in November from 55.9 when growth to 56.3 was predicted.
The Euro to US Dollar (EUR/USD) exchange rate recouped losses from the early part of the European session despite unfavourable Eurozone data.
With such a wealth of influential US data ahead, the US Dollar has softened slightly against other majors. It’s debatable whether any unfavourable figures will cancel out the boost of sentiment given by the FOMC yesterday.
Forex expert Masato Yanagiya commented: ‘The Fed’s minutes mentioning about the decline in inflation expectations doesn’t change the Dollar-strength story. It’s more likely there will be nothing left to stop the Dollar’s ascent.’
FOMC Minutes Boost US Dollar Exchange Rates
Earlier in the session… The Euro to US Dollar (EUR/USD) exchange rate has recorded losses as a result of weak Eurozone data and a slightly more hawkish Federal Reserve.
The minutes from the latest Federal Open Market Committee (FOMC) meeting showed that the Fed has debated whether to make the timeframe surrounding interest rate hikes more visible—a development which offered support to the US Dollar exchange rate.
US Dollar Rallies in Run-Up to Interest Rate Hikes
The October meeting minutes stated: ‘A number of participants thought that it could soon be helpful to clarify the committee’s likely approach.’ The Fed wants to offer some reassurance to investors after finishing its quantitative easing (QE) last month.
Economist Laura Rosner commented: ‘It isn’t just the timing of liftoff the Fed cares about, but the whole path of the federal funds rate. They do probably want to limit the extent of tightening that people expect, at least at the beginning.’
With the Federal Open Market Committee (FOMC) minutes confirming that the central bank is on track to higher interest rates, the US Dollar exchange rate rallied. Furthermore, the US could be the first of the Group of Seven (G7) developed nations to see an increase in borrowing costs since the beginning of the financial crisis in 2008.
Eurozone Weakness Pressures Euro to US Dollar (EUR/USD) Exchange Rate Lower
The Eurozone, however, is nowhere near the point in its recovery where interest rates can be raised. The flailing 18-nation economy has produced almost uniformly weak figures over the last few months, causing a loss of confidence in the European Central Bank (ECB) and its President Mario Draghi.
Last week some hope was restored when Draghi suggested that the central bank was prepared to buy sovereign bonds if necessary. However, Thursday’s disappointing Eurozone figures may cause another dip in sentiment.
Preliminary November figures have shown Composite, Services and Manufacturing Purchasing Managers Indexes (PMI) for France Germany and the Eurozone all fell short of economists’ forecasts.
All three French figures fell below the 50.0 benchmark which separates growth (above 50.0 index points) and contraction (below 50.0). In addition, Germany’s Manufacturing PMI balanced on the precipice between expansion and contraction at 50.0, falling from 51.4 and defying predictions to grow to 51.5.
As Germany is the largest economy within the currency bloc, the figures are taken very seriously. Overall Eurozone ecostats have also slipped, with Manufacturing PMI falling to 50.4, Composite at 51.4 and Services at 52.1.
Markit, who undertake the surveys, stated: ‘The pace of economic growth in the Euro area slowed to a 16-month low in November, according to the Markit Eurozone PMI. The headline index, which measures business activity in the manufacturing and services economies, fell from 52.1 in October to 51.4, its lowest since July of last year.’
Euro to US Dollar (EUR/USD) Exchange Rate Forecast
Still to come on Thursday is the Eurozone’s Consumer Confidence figure, which resided at -11.1 in October. Economists’ have forecast a rise to -10.7 in November.
The US Dollar is likely to experience volatility on Thursday with the release of the US Consumer Price Index (CPI). The CPI figure is expected to fall on the year from 1.7% to 1.6%—a factor that could act like kryptonite on the ‘Greenback’ exchange rate.
The Euro to US Dollar (EUR/USD) exchange rate is presently residing at 1.2512.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound,
,Euro , 1.2512,
US Dollar,,Euro , 0.7992,
Canadian Dollar,,Euro , 0.7038,
Australian Dollar,,Euro , 0.6868,
New Zealand Dollar,,Euro , 0.6247,
[/table]
US Dollar (USD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound,,US Dollar , 1.5660,
Euro,,US Dollar , 1.2515,
Canadian Dollar,,US Dollar , 0.8816,
Australian Dollar,,US Dollar , 0.8590,
New Zealand Dollar,,US Dollar , 0.7844,
[/table]
