The Euro to US Dollar (EUR/USD) exchange rate advanced to its best level in 2-days on Wednesday as dovish comments by Federal Reserve Chairperson Janey Yellen weakened the ‘Greenback’.
The Euro to US Dollar (EUR/USD) exchange rate reached a session high of 1.139
Tuesday’s comments by Janet Yellen sent the US Dollar exchange rate tumbling against the majority of its most traded peers as they suggested that an interest rate rise in the world’s largest economy is unlikely to occur over the next few Fed policy meetings.
‘If economic conditions continue to improve, as the committee anticipates, the committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis. Before then, the committee will change its forward guidance. However, it is important to emphasise that a modification of the forward guidance should not be read as indicating that the committee will necessarily increase the target range in a couple of meetings,’ said Yellen in her testimony to the US Congress.
Economists were disappointed by her words as they saw little to allow them to pin point the likely rate of a rate hike. Her answers to a questioning also led to confusion, as with some she appeared confident whilst on others she stressed concerns on weak labour market conditions and wages.
Many economists are now forecasting for a rate rise to occur in the second half of the year.
Greece Remains in Focus
The Euro meanwhile was receiving support after Greece’s package of economic reforms was approved by its creditors in the Eurozone on Tuesday. The package of measures includes taxation and public spending reforms and consolidating pension funds to reduce costs. Athens also pledged not to unwind state privatization programs and to stick to budget targets.
Despite that, nerves over the reform programme remain as the European Central Bank and International Monetary Fund said that they were wholly convinced by the measures.
‘While the agreement is welcome, it doesn’t change the fact that Greece still has limited access to funds. It also doesn’t hide the fact that both the IMF and ECB expressed concerns about the level of detail, and indicated that they would insist that Greece would need to do more if it wanted the release of additional bailout monies,’ said Michael Hewson from CMC Markets.
The Syriza led Greek government is also facing pressure from its critics who accuse it of selling out and breaking its pledges made before the election.
The USA is due to release data on New home sales which could offer some support to the US Dollar.