OECD Upgrades Eurozone Growth Forecasts – EUR Exchange Rates Bolstered
The Euro US Dollar (EUR/USD) exchange rate climbed on Tuesday, supported by an upbeat growth forecast from the OECD and news that US Secretary of State Rex Tillerson has been promptly replaced by CIA Director Mike Pompeo, a decision that spooked the markets.
The OECD upgraded their growth forecasts for the bloc to 2.3% in 2018 and 2.1% in 2019, an optimistic outlook that was motivated by a strengthening global economy and growing investment, two elements that could potentially drive employment and trade within the bloc higher.
The forecast also highlighted ongoing concerns regarding the possibility of a global trade war, however, with the think-tank citing US President Donald Trump’s tariff measures on steel and aluminium as an event that could spark a tit-for-tat trade war.
‘This could obviously threaten the recovery’, said OECD Activing Chief Economist Alvaro Pereira. ‘Certainly, we believe this is a significant risk, so we hope that it doesn’t materialise because it would be fairly damaging’.
The single currency remained resilient nonetheless, with markets still waiting to see China, and the EU’s response to the tariff measures (which are due to initiate on March 23rd).
Trump Ditches Tillerson, US Dollar (USD) Exchange Rates Tumble
The ‘Greenback’ encountered difficulties on Tuesday, supported by the latest inflation release that revealed a steady accelerated rise (2.2% YoY in Feb) but frantic later into the day on news that US President Trump has replaced Secretary of State Rex Tillerson with CIA Director Mike Pompeo.
The US Dollar Index – a measure of the ‘Greenback’ vs a basket of the majors fell by 0.24% immediately, with traders concerned that Tillerson’s departure could be a sign that the administration will soon institute further protectionist policies and become more aggressive in negotiating trade relationships internationally.
This is largely because markets regarded Tillerson as a ‘voice of reason’, hence his leave poses a great deal of uncertainty for the Trump administration – something markets are extremely anxious of.
Euro US Dollar (EUR/USD) Exchange Rate Forecast: Eurozone Inflation Readings on the Horizon
The markets will likely continue to focus on anything tariff-related this week, with retaliatory measures from either the EU, or indeed China liable to cause volatility for the EUR/USD exchange rate.
Beyond this, however, investors will have a wide range of notable ecostats to chew on, with US retail sales and a speech from European Central Bank (ECB) President Mario Draghi due tomorrow, US jobless claims due on Thursday and the highly anticipated Eurozone inflation readings due on Friday.
Markets currently expect the year-on-year print for February to print at 1.2%, down from the previous period’s 1.3%.
If this occurs then it would be a step even further away from the ECB’s target, of 2.0% – an event that could put the EUR/USD exchange rate under renewed pressure, particularly with the US Federal Reserve positioned as hawkish.
