Euro US Dollar Exchange Rate Fluctuates amid Persistent Tightening Prospects
The Euro US Dollar (EUR/USD) exchange rate is rangebound amid a hawkish European Central Bank (ECB) and Federal Reserve.
At time of writing the EUR/USD exchange rate is trading around $1.0924, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Supported by Hawkish Fed
The US Dollar (USD) is continuing to be supported this morning on hawkish rhetoric. Today, Fed Chair Jerome Powell reiterated his prior comments from the ECB Forum of Central Banking.
Powell once again confirmed further tightening is needed to bring inflation down. As headline CPI in the US remains far above the target rate of 2%, and a labour market that remains very tight, the Fed look to continue their aggressive rate hike cycle.
Speaking at a conference on financial stability in Madrid, Powell echoed his previous comments from Sintra and confirmed further tightening. Talking of the banking stress in March, the effects could still be felt and could lead to further tightening. And that the Fed still has a ‘long way to go’ before inflation will be reined in. Powell added:
‘We made this decision in light of the distance we have come in tightening policy, the uncertain lags in monetary policy, and the potential headwinds from credit tightening.
‘At the same time, he said, “a strong majority of Committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year.’
Euro (EUR) Buoyed by Rate Hike Expectations
Meanwhile, the Euro (EUR) offset a resurgent US Dollar amid their own hawkish central bank comments.
Talking at the same panel at the ECB conference in Sintra, ECB President Christine Lagarde echoed a flurry of hawkish comments from ECB policymakers. Confirming another rate hike in July, the prospect of further tightening is strongly hinted at. Lagarde also pushed back at the expectations of rate cuts.
Elsewhere, the ECB published its Economic Bulletin this morning, highlighting economic developments in the Eurozone. The bulletin said:
‘High energy and commodity prices and supply bottlenecks have driven strong inflation in the euro area and higher inflation differentials between euro area countries. Persistent inflation differentials may lead to external imbalances.’
Euro US Dollar Forecast: Rising German Inflation to Boost the Euro?
Looking ahead, the Euro US Dollar exchange rate could see further movement on the latest inflation data for Germany. An expected climb in consumer price index in Europe’s largest economy could strengthen the Euro.
Expectations of headline CPI in Germany to have risen in May could bolster expectations for further tightening from the ECB. With the inflation data for the Eurozone to print tomorrow, signs of stubbornly-high inflation could lift rate hike bets even further.
As for the US Dollar, the latest initial jobless claims could dent demand for the ‘Greenback’ as figures are expected to climb, hinting at a cooling labour market.
