Euro Demand Surges After Minor Deposit Rate Cut
After having been predicted for so long, the 10 basis point cut announced by the European Central Bank (ECB) today has still managed to come as a surprise. Traders had braced for worse news so the small cut, combined with an extension of quantitative easing, has seen the Euro advance 1.8% on the US Dollar.
The ECB has also decided that quantitative easing at its current rate of €60 billion per month is sufficient, although it has extended the deadline for the programme until March 2017. ECB President Mario Draghi has also called on Eurozone countries to do more to help stimulate the economy and create new jobs.
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After several days of better-than-expected growth in the Eurozone economy, the EUR/USD exchange rate has been hit by worse-than-expected Consumer Price Index figures. The news has helped the US Dollar appreciate after suffering from yesterday’s shock contraction in the US manufacturing sector.
EUR/USD Exchange Rate Forecast: Euro Falls as Eurozone Plagued by Low Inflation
After a rise in the German Consumer Price Index, an unexpected fall in Eurozone unemployment and last week’s better-than-expected Eurozone PMIs, today’s Eurozone Consumer Price Index figures have as good as extinguished any hopes that the European Central Bank (ECB) will refrain from expanding stimulus measures.
Persistently low levels of inflation have long been cited by ECB President Mario Draghi as a reason for increasing monetary stimulus packages and today’s CPIs show that the Core Index growth has slowed to 0.9%, while the non-core CPI estimate has remained flat at 0.1%.
The news has seen the Euro fall across the board, sliding -0.2% against Pound Sterling (GBP), -0.4% against the US Dollar (USD) and -0.5% against the Australian Dollar (AUD). The poor inflation figures show that the Eurozone economy is still struggling to pick up, increasing the likelihood that the ECB will have to push the deposit rate further into the negative and increase its asset purchasing programme.
The EUR/USD exchange rate is currently trending around 1.0582.
USD/EUR Exchange Rate News: US Dollar Advances Despite Dovish Comments from Brainard
The US Dollar is up 0.4% against the Euro, shrugging off the fallout from yesterday’s surprising contraction in the manufacturing sector as focus turns to the poor Eurozone inflation report. The ‘Buck’ (USD) was harmed yesterday after the ISM Manufacturing index showed that the sector shrank rather than expanding as forecast, as the index fell from 50.1 to 48.6.
The Euro weakness has also helped the US Dollar avoid the repercussions of dovish comments made by Federal Reserve Governor Lael Brainard, who has said that global economic conditions could limit the Fed’s ability to raise interest rates and that any rises should be slow and gradual.
According to Brainard, ‘The fact that the US economy is growing at a pace only modestly above potential while core inflation remains restrained suggests that the nominal neutral rate may not be far above the nominal federal funds rate, even now.’
The USD/EUR exchange rate is currently trending between 0.9404 and 0.9447.
EUR/USD Exchange Rate Forecast: Euro Likely to Remain Low Ahead of ECB Interest Rate Decision
The Euro is unlikely to recover today, with the ECB interest rate decision announced during tomorrow’s European session. Economists have predicted a 10 basis point cut to -0.30% in the deposit rate, while others polled by Reuters expect quantitative easing to be increased from €60 billion per month. Uncertainty over which path the ECB will take is keeping the Euro soft today and there is always the possibility that the ECB will choose to implement more than one measure.
The EUR/USD exchange rate is currently trending between 1.0579 and 1.0632.