Euro to US Dollar Falls Sharply on Comments

February 26, 2015 - Written by Ben Hughes

STORY LINK Euro to US Dollar Falls Sharply on Comments

The Euro fell broadly against the US Dollar following the release of mixed data out of the USA and comments made by St Louis Federal Reserve President James Bullard. The single currency tumbled after Bullard suggested that the Federal Reserve should change its policy statement at next month’s policy meeting.

‘The US Central Bank should drop the word ‘patient’ from its statement at a March 17-18 meeting, in order to provide optionality...going forward. If we take it out, then we can move at any of the meetings during the summer. If expected inflation goes back to more levels that are normal then I would have confidence that actual inflation would follow behind. Through the spring here we’ll have to see evidence of that,’ said Bullard in an interview with CNBC.

Also supporting the US currency was data, which showed that orders for durable goods rose in January for the first time in three months. The report raised optimism that the US manufacturing sector will improve strongly in the spring.

Total durable goods orders were shown the have increased by 2.8% last month, above expectations for a gain of 1.7%, while core durable goods orders, excluding volatile transportation items, inched up 0.3% in January, disappointing forecasts for a 0.5% gain.
Inflation data, which was also released, showed that consumer prices fell by 0.7% last month, a higher figure than the 0.6% drop expected by traders. The fall in the cost of living was the largest decline see in six years and was caused by the sharp fall in energy costs. Core prices, which exclude volatile goods such as food rose by 0.2%.

‘For consumers the drop in energy costs is generally good as it increases their purchasing power. The Fed’s going to look at the numbers and say, we expected it,’ said Josh Shapiro, chief US economist at Maria Fiorini Ramirez Inc.
The Euro meanwhile saw little support despite data showing that confidence across the 19-member Eurozone improved in February. Confidence improved as the European Central Bank (ECB) prepares to launch its €1.1 trillion quantitative easing programme in March.

Looking ahead to the end of the week, the EUR/USD exchange rate will likely experience volatility, as the markets await the release of US GDP data and the latest inflation reports from Germany and Italy.

US GDP is forecast to have risen by 2.1% in the fourth quarter of 2014.

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