- Euro US Dollar Slides to 1.1731 – US Dollar Euro Climbs to 0.8520
- Fed Chief Janet Yellen Voices Support for Rate Hikes – USD Bolstered
- German Election Continues to Encumber the Euro – Coalition Talks Begin
The Euro US Dollar exchange rate continued to fall today in the wake of recent remarks from Federal Reserve Chief Janet Yellen, (who took a notably hawkish stance by voicing support for continued, gradual rate hikes) and the chaos ensuing from Germany’s general election.
Janet Yellen Calls for More Rate Hikes, USD Bolstered
The US Dollar climbed to a monthly high today following yesterday’s remarks from Fed Chief Yellen, who discussed the continued need for gradual rate hikes, regardless of market uncertainty about the path of inflation.
Yellen hawkishly stated:
‘It would be imprudent to keep monetary policy on hold until inflation is back to 2%’.
This would suggest that the recent soft inflation readings from the US have little bearing on the Fed’s attitude to monetary policy, at least in the near-term.
This news came after last week’s Fed announcement that the central bank would begin winding down its economic stimulus program in October, sending bets on a rate hike by December up from 60% to 70% and lifting demand for the ‘Greenback’.
Beyond this, recent comments regarding US President Donald Trump’s proposed tax reform plan have also buoyed the US Dollar.
Whilst the tax plan is not yet revealed in entirety, markets are already anticipating great things, especially in regards to economic growth from tax cuts for the middle class and businesses.
Daniel Lenz, DZ Bank Strategist stated:
‘Further details of Trump’s tax plans and whether this proceeds smoothly will be of interest — it should be a boost to the economy and mean a generally higher bond yield environment’.
Whether the legislation will pass, however, is another question entirely – although markets have become more optimistic following Trump’s deals on legislature like the debt ceiling and Storm relief.
German Coalition Talks Begin, Euro (EUR) Encumbered
Demand for the Euro (EUR) remains minimal this morning as markets digest the recent German General Election.
Whilst Angela Merkel was successful in being elected for a fourth-term, she lacked the necessary majority required and has now been forced to begin negotiations to form a coalition government – a process that could take anywhere from weeks to months.
Talks have reportedly begun between Merkel’s Christian Democratic Union (CDU), the Christian Social Union (CSU), the ‘business minded’ Free Democratic Party (FDP) and the Greens.
The Social Democratic Party (SDP) fared extremely badly in the election (the party’s worst result in post war history, in fact) and stated that they would not be forming a coalition with Merkel, instead choosing to be the main opposition party.
Demand for the Euro will likely remain hindered as negotiations continue, preventing EUR USD from capitalising in the near-term.
Euro US Dollar Outlook Gloomy Before US Durable Goods Orders and Fed Speeches
Because of repeated hawkish remarks from Fed members and the on-going negotiation process involved in Germany’s elections, the outlook for EUR USD is likely to remain gloomy.
US data today is liable to continue bolstering the ‘Greenback’, with US durable goods orders in August forecast to jump 1.0%, up from the previous period’s -6.8% fall.
Markets will also be watching for the US pending home sales figures for August, as well as crude oil inventories and speeches from Fed officials James Bullard, Lael Brainard and Eric Rosengren, members deemed likely to present hawkish sentiment.
There may be some room for fluctuation, however, in light of Thursday and Friday’s Eurozone data prints – notably Germany’s inflation figures, employment rates and retail sales.
