Euro US Dollar (EUR/USD) Exchange Rate Wavers as Investors Adjust ECB Hike Bets
The Euro US Dollar (EUR/USD) exchange rate is treading water today, as investors pare back their bets on further tightening from the European Central Bank (ECB).
At the time of writing, EUR/USD is trading at around €1.0684, showing little movement from the morning’s opening rates.
Euro (EUR) Narrows amid Lack of Data
The Euro (EUR) is largely rangebound so far today, due to a light data calendar. This is preventing investors from firmly supporting the common currency.
Speeches from ECB policymakers have recently aimed to readjust market expectations around cutting interest rates.
Francesco Pesole, FX Strategist at ING, commented:
‘A slow shift from trying to convince markets another hike is a possibility (like in the US, investors remain hard to persuade) to pushing back more directly against rate expectations may start to appear more clearly in ECB members’ remarks.’
As such, markets are paring back their expectations of further interest rate hikes, leaving EUR to flounder.
Additionally, markets are broadly quiet today as investors anticipate further direction from other central banks.
US Dollar (USD) Wavers as Markets Mull Hawkish Powell Speech
The US Dollar (USD) is treading water so far today, as markets continue to mull hawkish comments from Federal Reserve Chair Jerome Powell.
In a speech given last night, Powell warned that the Fed’s battle against inflation remains long, and that another hike was still possible.
This morning, investors are considering whether a further hike is indeed possible. The CME FedWatch Tool shows that 90% of investors are leaning towards further inaction in the future, likely capping USD.
Francesco Pesole, FX Strategist at ING, commented:
‘The hawkish rhetoric pushed by Powell suggests that the Fed still prefers higher Treasury yields doing the tightening rather than hiking again, and that is exactly what markets are interpreting.’
With markets growing less convinced by Powell’s speech, the tepid market mood is serving to underpin USD exchange rates.
Euro US Dollar Exchange Rate Forecast: ZEW Index Increase to Boost EUR?
Looking ahead for the Euro, the core catalyst of movement is likely to be Tuesday’s release of the German ZEW economic sentiment index. November’s reading is forecast to have improved significantly, climbing from -1.1 to 5.
If German businesses are turning more optimistic, the common currency could strengthen. However, if the reading remains tepid, EUR may struggle to gain a foothold.
For the US Dollar, the latest slate of consumer price index data is due to print on Tuesday. Economists currently forecast a cooldown in headline inflation, with the reading expected to drop from 3.7% to 3.3%.
However, core CPI is expected to hold at 4.1%, which may strengthen the US Dollar by prompting renewed Fed hike bets. The Fed has kept one additional hike in their projections, and signs of sticky core inflation could be enough to push it into action.
