Euro US Dollar (EUR/USD) Exchange Rate Surges on Hawkish ECB
The Euro US Dollar (EUR/USD) exchange rate is strengthening considerably on an upbeat market mood and hawkish rhetoric from European Central Bank (ECB) policymakers.
At time of writing, the EUR/USD exchange rate is around $1.0655, a 0.75% climb from this morning’s opening levels.
Euro (EUR) Underpinned by Further Tightening from the ECB
The Euro (EUR) exchange rate is soaring against most of its peers this morning after bolstered expectations of further rate hikes from the ECB. Following on from rising inflation in both Spain and France, and hawkish speeches from ECB policymakers, EUR investors remain buoyant.
European Central Bank (ECB) policymaker Joachim Nagel said this morning that further significant rate hikes will be necessary beyond March. ECB Governing Council member Madis Muller also added to the rhetoric by adding:
‘Rate hikes are having an effect but inflation is still too high. Expectations of rapid ECB rate cuts are wishful thinking.’
Elsewhere, manufacturing PMI is also lending some support to the Euro despite remaining in contraction territory. Following eight months of contracting activity in the factory sector, manufacturing production finally stabilised and came in at 48.5. Underlying data also showed output increased to a nine-month high, the survey from S&P Global also said:
‘According to survey respondents, easing supplier bottlenecks and improved raw material availability reduced the strain on production schedules. Indeed, supplier delivery times shortened to the greatest extent since May 2009. Consequently, cost pressures faced by goods producers eased considerably once again, with the overall rate of input price inflation slowing to a marginal pace that was the weakest in almost two-and-a-half years.’
US Dollar (USD) Undermined by an Upbeat Market Mood
Meanwhile, the US Dollar is languishing this morning after better-than-expected data from the world’s second largest economy, China.
Upbeat manufacturing and services sectors showed a return to growth, bolstering the global market mood, sapping demand for safe-haven currencies such as the ‘Greenback’. After months of stagnant or contracting activity, China’s reopening looks to finally be paying dividends. Dr Wang Zhe, Senior Economist at Caixin Insight Group, commented on the strong data:
‘In a nutshell for February, the economy saw a faster pace of recovery following a peak in the recent wave of Covid infections as supply and demand expanded, overseas demand surged, employment started to rebound, and logistics recovered at a faster pace.’
Euro US Dollar Exchange Rate Forecast: Softening German Inflation to Soften the Euro?
Looking ahead, the Euro US Dollar exchange rate could see further movement when the latest reading for inflation in Germany is released this afternoon. An expected easing from 8.7% to 8.5% could pare rate hike best from the ECB.
Elsewhere, ISM manufacturing PMI is due to show a modest climb, but is expected to remain in contraction territory. Despite this, an improvement would halt a five-month losing streak of waning activity.
