Euro US Dollar Exchange Rate Bolstered by Interest Rate Increase Suspicions
The Euro US Dollar (EUR/USD) exchange rate is firming today as Euro investors bet on the European Central Bank’s (ECB) next interest hikes and Ukraine’s forces advance in the east.
At the time of writing the EUR/USD exchange rate is trading at around $1.0135 which is up roughly 0.9% from this morning’s opening rate.
Euro (EUR) Bolstered by Aggressive Interest Rate Hike Speculation
The Euro (EUR) is strengthening today, underpinned by expectations the European Central Bank (ECB) will continue to raise interest rates aggressively.
EUR investors have already begun pricing in another 75bps hike is for the ECB’s next meeting in October.
This follows a record 75bps rate hike from the ECB last week.
The central bank’s policymakers decided that aggressive action was needed to tackle soaring inflation caused by high energy prices.
Reuters reported ECB policymakers are discussing the possibility of another 75bps rate hike next month. This would bring the rate up to 2% in October’s meeting.
However, there are some investors that believe this ‘restrictive territory’ could cause the economy to slow. This could be counterintuitive to the single currency.
US Dollar (USD) Dented by Risk-On Market Mood
The US Dollar (USD) has fallen significantly amongst its peers today as investor risk appetite leaves the safe-haven currency high and dry.
Upbeat market mood dented the US Dollar today, propelled by a lack of data and better trading prospects in Europe. This left the USD near a four-week low against the Euro.
The US Dollar is pulling back as Ukrainian forces have made rapid gains in the east of the country. With Russian forced to retreat from large swaths of previously occupied territory.
Jim Reid of Deutsche Bank said that the good news has brought war efforts back into focus:
‘In market terms, actual war developments have been relatively quiet of late with most of the focus on Russian gas (or lack of it) into Europe. So this brings the military progress back in some focus. So all eyes back on the next step from both sides.’
Euro US Dollar Exchange Rate Forecast: US Inflation to Underpin Movement?
The Euro US Dollar exchange rate could be driven by Euro as US inflation is expected to drop, which could increase risk currency trading.
Data expected tomorrow shows a slowing down of inflation rates in the US from 8.5% to 8.1%. If this is correct, then an argument could be made for less aggressive interest rate hikes from the Fed in future.
Tomorrow German data focuses on the final inflation rate for August. The figures are expected to confirm a drop in inflation. The current figure reads 0.9% and is forecast to drop to 0.3%. This is in response to ECB’s latest interest rate hike of 75bps.
German’s economic sentiment could also trim the Euro’s gains as data printing tomorrow shows a decrease in consumer moral.
The single currency could suffer if the data misses forecast and is dragged down by moral.
