EUR/USD Exchange Rate Rises Following Jackson Hole Symposium
The Euro US Dollar (EUR/USD) exchange rate continues to firm this afternoon after a volatile trading session for the US Dollar (USD).
PCE inflation data and a speech from Federal Reserve Chairman Jerome Powell threatened to derail USD exchange rates, while hawkish rhetoric from the European Central Bank (ECB) buoyed the Euro (EUR) toward the close of the session.
At the time of writing, EUR/USD is trading at $0.9994, up 0.3% from today’s opening levels.
US Dollar (USD) Pressured by Inflation Data, Powell Speech
The US Dollar initially succumbed to pressure on Friday as America’s PCE price index – the Federal Reserve’s preferred measure of inflation – declined to 6.3% from 6.8% in the year to June.
Easing inflationary pressures are unlikely to support the argument for aggressive monetary policy tightening, although several Fed members have already registered their support for a 75bps interest rate hike later this year.
Further inspiring bearish trading was suspense ahead of Jerome Powell’s announcement at the Jackson Hole Symposium. The Symposium is an annual event held in Wyoming, which focuses upon pressing economic issues in the US and globally.
As Powell began his speech around 3pm BST, the ‘Greenback’ continued to tumble as the Chairman’s remarks struck a relatively downbeat tone. Although he reiterated his commitment to bringing inflation down, Powell simultaneously warned that interest rates would cause ‘some pain’ to the US economy:
‘While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses,’ he commented; ‘These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.’
Following the speech, however, USD ticked back up against several of its peers. Tailwinds may have been prompted by the increased likelihood of an imminent 75bps interest rate hike, as the probability purportedly rose to 54.5%.
Euro (EUR) Strengthens on USD Weakness, ECB Speculation
The Euro found strength early on Friday’s session on account of weakness in the US Dollar. Given the strong negative correlation between EUR and USD, headwinds for the ‘Greenback’ invariably trigger an uptick for the single currency.
Tailwinds may also have been extended following Thursday’s upbeat data: Germany’s business climate indicator printed above expectations yesterday at at 88.5. This represented a marginal dip on July’s reading, as supply chain bottlenecks ‘eased significantly’.
Boosting the Euro in the second half of the European session was a report from Reuters which revealed that several policymakers at the European Central Bank (ECB) want to discuss the possibility of a 75bps interest rate hike this year.
This would bring the ECB’s actions closer in line with that of the Federal reserve, narrowing monetary policy divergence and likely boosting the Euro.
Possibly capping tailwinds, however, are concerns that the Eurozone economy is not strong enough to endure such a bold move. However, multiple sources told Reuters that policymakers had considered that possibility and still thought the hike worthwhile due to a deteriorating inflation outlook.
EUR/USD Exchange Rate Forecast: US Data to Direct Movement?
Looking ahead, a lack of Eurozone data in Monday’s docket leaves EUR/USD to trade on US impetus next week.
If manufacturing data from the Dallas Fed reveals a further decline in activity, USD could come under pressure – potentially buoying EUR/USD. On the other hand, if policymaker Lael Brainard strikes a hawkish tone later in Monday’s session, the ‘Greenback’ could climb to the detriment of the Euro US Dollar exchange rate.
Elsewhere, risk averse trading could boost the Euro, while additional energy concerns may suppress EUR appeal.