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Euro Dollar Exchange Rate Softer Despite Positive Euro Zone data

December 18, 2014 - Written by Frank Davies

The Euro continued to trade softer against the US Dollar despite the release of a number of positive economic data releases out of the single currency bloc.

Positive Data has little impact on Euro exchange rate



eur usdData out of Germany showed that the region’s largest economy is on the verge of recovering as the turmoil in Russia and the possibility of a cash injection by the European Central Bank is expected to have little direct impact upon Germany. The Ifo survey showed that business morale in the nation increased in December for a second consecutive month, adding to signs that the German economy will improve after narrowly avoiding sliding into recession in the third quarter.

The Ifo institute's closely watched business climate index rose to 105.5 points this month from 104.7 points in November.

‘The outlook for the months ahead continued to brighten. Dropping oil prices and a falling Euro exchange rate are seasonal gifts to the German economy,’ said the Ifo.

A separate report released by the European Union statistics agency showed that construction activity across the 18-member Eurozone increased by 1.3% in October, the fastest pace seen this year. The rise suggests that businesses and households are becoming less reluctant to invest in the region. On an annual basis, construction activity increased by 1.4% from the previous year.

The US Dollar continued to trade higher against the Euro after the Federal Reserve said that it expects to start raising interest rates early next year. The Fed also removed its pledge to keep rates low for a ‘considerable time’.

There was a mixed reaction to the Federal Reserve’s announcement as some economists saw the comments as hawkish whilst others thought they were dovish.

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‘Equities in Europe are trying hard to take advantage of a dovish US Federal Reserve led rally in the states. While the considerable time statement remains in the minutes despite some reports to the contrary, the fact it changed its language slightly, and highlighted a patient stance on when rates will start going up, maintained the dovish theme. The comments by chair, Janet Yellen, that this alteration in language did not actually mean a change in its outlook helped put a rocket under equities for the final part of last night’s session,’ said Will Hedden from IG.

The US Dollar could make more gains against the Euro as US jobs data is forecast to show that the labour market in the world’s largest economy continued to strengthen.

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