Euro US Dollar (EUR/USD) Exchange Rate Fluctuates amid an Uncertain ECB
The Euro US Dollar (EUR/USD) exchange rate is struggling to find a clear direction this morning amid mixed messages from the European Central Bank (ECB). Contrasting policy outlooks from ECB members could be sapping demand.
At time of writing, the EUR/USD exchange rate is around $1.0700, relatively unchanged from this morning’s opening levels.
Euro (EUR) Subdued Despite Hawkish ECB
Meanwhile, the Euro (EUR) exchange rate is struggling to find much strength against its peers today. A hawkish European Central Bank (ECB) and a favourable economic outlook is failing to provide much support.
The negative correlation the Euro shares with the US Dollar could be paring gains as the latter looks to strengthen once again. In a speech from ECB President Christine Lagarde last night, another 50bps rate hike is to be expected in March. A position that is shared amongst most ECB policymakers too.
However, a speech from ECB Executive Board Member Fabio Panetta poured cold water on absolute certainty by claiming that pre-determined policy moves should not be committed to. Panetta instead called for smaller interest rate hike, adding:
‘With rates now moving into restrictive territory, it is the extent and duration of monetary policy restriction that matters.
‘By smoothing our policy rate hikes – that is, moving in small steps – we can ensure that we calibrate both elements more precisely in the light of the incoming information and our reaction function.’
US Dollar (USD) Supported by Robust Economy
The US Dollar remains quiet this morning as investors wait for further evidence that the US economy remains robust. A strong economy could lend credence to future rate hikes. With producer price inflation expected to fall, and weekly jobless claims to remain low, future rate hike bets could keep USD investors buoyed. Economists at Commerzbank commented:
‘The US economy has started into the new year in a much more robust manner than expected, and the Fed will have to hike rates more significantly than expected to ensure that inflation falls towards its target.’
Despite falling inflation, robust retail sales showed that consumer spending bounced back after a dismal previous month, supporting the US Dollar. Yesterday’s rally followed the biggest increase in retail sales since March 2021. With a series of hawkish Fed policymakers, and reassurance over a strong economy, the ‘Greenback’ could remain supported.
Elsewhere, President Joe Biden is expected to make a speech later today to address the four Chinese spy balloons shot down over the US. With geopolitical tensions simmering between the world’s two largest economies, market sentiment has been wavering. Safe-haven currencies such as the ‘Greenback’ could be drawing modest strength from the tensions.
Euro US Dollar Exchange Rate Forecast: Flurry of US Data to Buoy the Greenback?
Looking ahead, the Euro US Dollar exchange rate could see further movement with a myriad of mid-tier economic releases. PPI and initial jobless claims will be the ones USD investors will focus on. An expected drop in producer price inflation and maintained low unemployment claims could bolster the ‘Greenback’. Further evidence of a robust economy could cheer investors.
Meanwhile, speeches from ECB member Philip Lane and Vice President Luis de Guindos could influence movement. If hawkish tones are struck from either, the Euro could enjoy a resurgence. However, strength of the USD is likely to impact the pairing more.
