Euro US Dollar Exchange Rate Slumps on US Dollar Strength
The Euro US Dollar (EUR/USD) exchange rate continues to trend down this morning following yesterday’s hawkish announcement from the Federal Open Market Committee (FOMC). Federal Reserve Chairman Jerome Powell noted that there was ‘quite a lot of room’ to raise the policy rate in the near-term, buoying USD sentiment.
At the time of writing, EUR/USD is trading at $1.1196, down 0.4% from today’s opening levels.
US Dollar (USD) Firms as Fed Signals Imminent Rate Hike
The US Dollar (USD) is climbing against the majority of its peers today in the wake of upbeat comments from the Fed on Wednesday.
The US central bank left policy settings unchanged as expected, but confirmed that the committee is in favour of hiking rates in March ‘assuming the conditions are appropriate for doing so’.
Inspiring further optimism, the FOMC observed that the economy appears to be recovering from the pandemic, with joblessness decreasing:
‘Indicators of economic activity and employment have continued to strengthen… Job gains have been solid in recent months, and the unemployment rate has declined substantially.’
While the news had bolstered the ‘Greenback’, the general market mood is risk-off as investors are rattled by stock market volatility: by Tuesday, the S&P 500 had recorded its worst-ever losses for the start of a year.
Traders are also concerned about the implications of withdrawing support amidst geopolitical uncertainty, as tensions persist between Russia and Ukraine.
Euro (EUR) Trading Subdued on Weak Risk Sentiment
The Euro (EUR) is sliding against its peers today on account of weak trading sentiment and strength in the US Dollar.
EUR/USD hit a two-month high earlier in the month as the single currency corrected up, but economists at Credit Suisse consider that the corrective phase is now over and anticipate a resumption of the rate’s core downtrend.
Also weighing upon EUR trading is a weak consumer confidence report from Germany. Data from the GfK Group revealed that sentiment climbed rather than sinking further to -7.8 for the month of February as expected: nevertheless, consumer confidence remained in the red at -6.7.
High energy prices continue to damped morale, alongside the decline in real wages: willingness to buy increased marginally on last month, but remains at one of its lowest levels since the start of the pandemic.
Analysts at ING bank observe:
‘Judging from today’s latest consumer confidence data, any rebound in private consumption will still take some time… Consequently, even a lifting of the social restrictions over the coming weeks will not immediately lead to any sharp pick-up.’
Euro US Dollar Exchange Rate Forecast: Markets Eye US Economic Data
Looking ahead, investors will be focused on US GDP, durable goods orders and weekly jobless claims to gauge the strength of the country’s economy.
GDP growth in the final quarter of 2021 is expected to have risen to 5.5% from 2.3% previously, potentially buoying the ‘Greenback’; meanwhile, durable goods orders look to have declined in December. If the latter comes to pass, gains may be capped.
Initial jobless claims, on the other hand, are forecast to have fallen to 260K in the week ending 22 January, from 286K previously. Such data could also lend upside.