Update, 10.45, Dec 13th: The Euro US Dollar exchange rate is stuck around opening levels this morning ahead of this evening’s FOMC announcement. However, strong Eurozone industrial production figures have allowed EUR to remain in positive territory.
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The Euro US Dollar exchange rate has weakened slightly today as markets await tomorrow evening’s Federal Open Market Committee (FOMC) monetary policy announcements.
Disappointing results from the latest ZEW sentiment surveys are also weighing on the Euro today, preventing it from capitalising on USD weakness.
EUR USD is currently trending around 1.1745.
Euro (EUR) Slips on Disappointing ZEW Sentiment Survey Results
While the latest German current situation index from ZEW has beaten forecasts, climbing from 88.8 to 89.3 instead of edging down to 88.7, other indices have not performed as well.
The German expectations index for December fell further-than-expected from 18.7 to 17.4, against predictions of a smaller drop to 18.
According to ZEW, the approximately 200 institutional investors and financial analysts polled were concerned that slow progress in the German government’s coalition talks could complicate wider political matters for the European Union, including reforms and Brexit negotiations.
Meanwhile, the Eurozone economic sentiment measure dropped from 30.9 to 29.
Anticipation of US Interest Rate Decision Keeps USD EUR Exchange Rate Trending Narrowly
The proximity of the latest monetary policy announcements from the FOMC is today keeping appetite for the US Dollar muted.
Markets are firmly expecting an interest rate hike, with the Fed Funds futures market predicting an 87.6% chance of interest rates being raised to 1.5% and a 12.4% chance of borrowing costs hitting 1.75% as a result of this week’s meeting.
These expectations have kept the US Dollar trending in a narrow range over the past few weeks, with an imminent hike keeping a floor under the ‘Greenback’ but market expectations limiting the room for further appreciation.
However, concerns have emerged regarding the longer-term outlook for interest rates, after the Federal Reserve appeared more cautious in the last monetary policy meeting than commentators were expecting.
This suggests that this week’s likely rate hike could be the last to come for some time, so markets could be more interested in the tone of the accompanying statement than the rate hike.
Data that builds a positive picture of the economy as a whole can therefore boost the US Dollar, as it improves the odds of the Fed remaining hawkish into the New Year; today’s better-than-expected NFIB small business optimism index for November has thus given USD a small boost against EUR.
The index was expected to inch higher from 103.8 to 104, but instead it climbed to 107.5.
Will EUR USD Volatility Start Before FOMC Announcement with US CPI Release?
The rest of today’s US data will be of little influence, but tomorrow could be a much more volatile day.
Tomorrow’s Eurozone data releases include the medium-impact industrial production figures for October and the employment report covering the third-quarter.
US consumer price index figures will be released early in the afternoon and, given the importance of the long-term outlook for interest rates, could actually have an impact upon the EUR USD exchange rate – although this could be delayed until after the FOMC announcement.
November’s overall rate of price growth is expected to have climbed from 2% to 2.2%, while core growth is estimated to have held steady at 1.8%.
Average weekly and hourly earnings figures will also be released; sluggish results here could curb market enthusiasm as they would suggest weak consumption in the future.
After the close of the session the FOMC will announce its latest monetary policy decisions, followed shortly by a press conference with Federal Reserve Chair Janet Yellen.
Unless the Fed hikes rates and suggests more rounds of tightening will follow in the near-term, the US Dollar is likely to fall, as speculators lock in profits by selling USD.
This could see the Euro climb higher, although downside pressure could soon return to the common currency given that the European Central Bank (ECB) announces the results of its own monetary policy meeting on Thursday.