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Euro Rate Today: EUR USD Exchange Rate Gains Slip, EUR GBP Record Lows as Sterling Surges

September 18, 2014 - Written by Tim Boyer

Euro Rate Today: The Euro to Dollar (EUR USD) exchange rate had been moving higher on Thursday following the Federal Open Market Committee’s (FOMC) decision to keep interest rates stable for a ‘considerable time’.

Conversely, the Euro was trading apprehensively as the new European Central Bank (ECB) stimulus measures were implemented in the 18-nation economy.

Euro Exchange Rate Precarious on New ECB Fiscal Policy

It’s been no secret that the Eurozone has suffered with persistently low inflation levels for some time and attempts to thwart it by the European Central Bank have fallen flat. Today, however, will see ECB President Mario Draghi announce the result of its long term refinancing operation (LTRO) in which the central bank will lend money to Euro banks to boost its balance sheet. The ECB is hoping their balance sheet can reach 3 trillion Euros, in comparison to the current 2 trillion.

Economists have estimated the amount banks are willing to lend will vary between 100 billion to 300 billion Euros. Economist Martin Van Vliet commented that a low demand to borrow by banks ‘is likely to raise further questions over the feasibility of the ECB’s goal.’ The ECB’s next operation will begin in December. Vliet continued, ‘While we agree that the ECB will likely struggle to meet this goal, we would suggest to wait until after the December TLTRO before drawing strong conclusions.’

Furthermore, another element which has added pressure to the Euro was Thursday’s confirmation of the Eurozone Core Consumer Price Index which remained at 0.9% year-on-year. The annual inflationary level has fallen into a rut and continues to wallow in the lowest level since late 2009. Despite Draghi announcing new quantitative easing (QE) style measures, many are hoping that an intense period of QE will take place. The ECB remains the only bank since the global economic crisis to not undertake QE. Economist Rintaro Tamaki commented: ‘Recent ECB action is welcome but further measures, including quantitative easing, are warranted.’

US Dollar Exchange Rate Constrained by Federal Reserve Language

The Federal Reserve has made it clear on several occasions that it is in no rush to raise borrowing costs in the US. Moreover, it have stated that interest rates will remain low for a ‘considerable time’ after quantitative easing measures finish. However, the market has been swept up with upbeat US figures and speculation that the Fed may hike rates in the near future, which has encouraged investors to favour the US Dollar. However, the ‘Buck’ found little support from the Federal Open Market Committee (FOMC) yesterday as they announced their decision to maintain low interest rates at 0.25% and continued to use the same language as usual. Furthermore, the Fed’s decision was pre-empted after the US Consumer Price Index (published earlier in the day), showed a surprising drop in inflationary levels. Consumer prices tumbled for the first time in the last 18 months, which supported the Federal Reserve’s outlook on the necessity of tightening slack in the economy before rate increases can take place.

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Economist Anthony Karydakis commented: ‘There is still enough slack in the economy to keep a tight lid on price increases, which should support the view of those within the Fed arguing in favour of patience before the first rate hike.’ In recent weeks some Federal Reserve Presidents have caused a stir in the market, stating that they believe the Fed should change its language regarding rate hikes.

The US Dollar may see some fluctuations later on Thursday with the publication of US Building Permits, Continuing Claims, Housing Starts and Initial Jobless Claims. Meanwhile, the Euro may experience movement as a result of the new measures put in place by the European Central Bank.

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