The US Dollar has fallen by -0.4% against the Euro today, following a cautious statement from a Federal Reserve official.
Euro traders have been more focused on the German economy, while the country as a whole could offer continuing support in the weeks ahead.
Reduced Chances of Fed Interest Rate Hike could Damage US Dollar
Apart from direct US economic data, the next major influence on the US Dollar could be Federal Reserve comments about interest rates.
For weeks now, it has widely been assumed that the Fed will raise interest rates in December from 1.25% to 1.50%.
Economists believe there is an over-90% chance of an interest rate hike during the month, but this still isn’t a guarantee.
Recent developments have actually gone against a December rate hike, with a speech from Fed Bank of Chicago President Charles Evans.
Evans has cautioned that the Fed should suggest there could be higher inflation in the future, while also warning about continued low inflation rates.
Specifically, Evans has warned that unless the Fed can turn inflation around and get it rising;
‘We could be in for the kind of trouble that Bank of Japan has faced for so long’.
If the Fed seems to be overly concerned about the current pace of inflation, the US Dollar could tumble as it might suggest reduced chances of a December rate hike.
Will Euro Firm on German Government Breakthrough?
The Euro rallied earlier this week on Eurozone-wide data, which included news that German GDP and confidence readings had risen.
In the future, the Euro could post similar gains if a German government coalition is formed in short order.
Since the election in late September, Germany has been without a unified government.
This is because the CDU/CSU pairing failed to achieve an overall majority in the votes, so officials have instead been trying to form a majority with a number of contrasting parties.
Talks have been progressing slowly so far, mainly because there is a need to address ideological differences between the various parties.
The latest development has seen parties set a deadline of Thursday for seeing clear progression in talks.
If it looks like an effective government could be formed before the New Year, the Euro could rise sharply against the US Dollar going ahead.
Recent Interbank USD EUR Exchange Rates
At the time of writing, the US Dollar to Euro (USD EUR) exchange rate was trading at 0.8444 and the Euro to US Dollar (EUR USD) exchange rate was trading at 1.1839.