Euro US Dollar (EUR/USD) Exchange Rate Fluctuates on Dovish Fed Rhetoric
The Euro US Dollar (EUR/USD) exchange rate is trading erratically today as fading Federal Reserve interest rate expectations support a risk-on market mood.
At time of writing, the EUR/USD exchange rate is around $1.0433, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Undermined by Reduced Rate Hike Expectations
The US Dollar remains on the back foot this morning as Federal Reserve Chair Jerome Powell poured more cold water on rate hike expectations. In a speech yesterday, Powell commented that it would make sense to now moderate the pace of interest rate raises.
But lending some modest support to the ‘Greenback’ were Powell’s follow-up comments reiterating that the Fed still had a long way to go as inflation remains too high. Following his comments, the CME Group’s FedWatch Tool expects the market are pricing in an 80% probability of a smaller 50bps rate hike at the next policy meeting in December. Anna Wong, Bloomberg’s Chief US Economist commented on Powell’s remarks:
‘Powell clearly rejected the notion of a shock-therapy style of rate hikes for inflation risk management purposes. Rather, he favours moving more slowly amid uncertainty and holding rates high for a longer period.’
Euro (EUR) Quiet Despite Record Low Unemployment
Meanwhile, the Euro (EUR) is failing to capitalise on the US Dollar’s weakness. A flurry of mixed data struggled to boost the single currency. The unemployment rate in the Eurozone came in better than expected but failed to offset a stuttering economy. Against expectations of the jobless rate remaining 6.6%, unemployment ticked lower to 6.5%.
However, offsetting gains from a record low unemployment rate is a continued underperforming manufacturing sector. Expected to print at 47.3, final manufacturing PMI came in at 47.1, highlighting the persistent inflationary pressures. But despite remaining in contraction territory, there are hopeful signs of pressures easing. Chris Williamson, Chief Business Economist at S&P Global, said of the latest data:
‘The PMI signals some welcome moderation in the intensity of the eurozone manufacturing downturn in November, which will support hopes that the region may not be facing a winter downturn as severe as previously anticipated by many.’
Elsewhere, retail sales in Germany fell much further than expected. Highlighting the cost-of-living crisis gripping Europe’s largest economy, analysts fear the rest of the Eurozone could follow suit in declining. An expected 0.4% slump was met with the biggest decline of the year at -2.8%.
Euro US Dollar Exchange Rate Forecast: Flurry of US Date to Buoy the Greenback?
Looking ahead to the rest of the day, the Euro US Dollar exchange rate could see further fluctuations. A myriad of key data releases for the US could cause movement. Headlining the bill is the Personal Consumption Expenditures (PCE), the Fed’s preferred gauge of inflation. An expected softening of inflation could weigh on future rate hike expectations.
Several speeches from Fed policymakers could also influence the ‘Greenback’. In the wake of a dovish stance from the central bank, a continued less aggressive rhetoric could see the US Dollar slide.
Meanwhile, speeches from ECB members could influence the Euro US Dollar currency pairing. With inflation remaining too high, the Euro could climb if a hawkish rhetoric is maintained.
