EUR to USD Exchange Rate Slips on Hawkish Comments from Fed?s Harker

February 21, 2017 - Written by Minesh Chaudhari

STORY LINK EUR to USD Exchange Rate Slips on Hawkish Comments from Fed?s Harker

The Euro to US Dollar exchange rate continued to trend near its weekly lows on Wednesday afternoon as investors adjusted ahead of the evening’s Federal Reserve meeting minutes.

Thursday’s final Q4 German Gross Domestic Product (GDP) results may give the Euro some support towards the end of the week, but if Eurozone political concerns persist it’s unlikely the shared currency will see a strong recovery.

[Previously updated 21/02/2017]

The Euro to US Dollar exchange rate fell on Tuesday after holding its ground for most of Monday trade. US markets were closed on Monday to observe President’s Day but the ‘Greenback’ benefited overnight from the hawkishness of Fed policymakers.

Unless EUR/USD can recover in the coming days from its current weekly lows of 1.0535, the pair looks set to see its third consecutive week of losses. Could December 2016’s low of 1.03 be back in sight?

EUR Weakened by French Election Concerns despite Solid PMIs

The Euro has once again been undermined by political concerns this week, despite developments in Greek debt aid talks and better-than-expected data from the Eurozone’s economic sectors.

On Monday evening it emerged that nationalist French Presidential candidate, Marine Le Pen, had once again advanced in polls amid increasing French security concerns.

While polls see her losing if she gets to the second round of the election, the surprise wins of the Brexit and Trump votes in 2016 have dimmed investor faith in polls.

As a result, the Euro was unable to benefit from Markit’s preliminary February PMIs for the Eurozone bloc. This was despite Germany’s key manufacturing PMI unexpectedly improving from 56.4 to 57, beating predictions of a fall to 56.

The Eurozone’s overall PMIs also impressed. Manufacturing improved from 55.2 to 55.5 and services from 53.7 to 55.6. The composite print beat expectations of a slip to 54.3 by improving from 54.4 to 56.

USD Bolstered by Latest Hawkish Comments from Fed’s Harker

US Dollar trade was quiet on Monday as US markets were closed to observe the President’s Day public holiday.

However, the ‘Greenback’ strengthened overnight and continued to advance on Tuesday following hawkish comments made by Philadelphia Federal Reserve President Patrick Harker.

Harker indicated he would support a US interest rate hike as soon as March and stated he would ‘not take March off the table at this point’.

Markets will be extra focused on US data in the coming weeks as a result. However, traders still await fiscal policy news from US President Trump which has weighed on the US Dollar’s advances.

EUR/USD Forecast: Fed Minutes in Focus on Wednesday

After Harker’s comments on Monday evening, USD traders are now even more hotly anticipating this week’s upcoming Federal Open Market Committee (FOMC) meeting minutes.

The minutes of the Fed’s latest meeting will be published during Wednesday’s American session. Investors are hoping that more Fed policymakers will have shown the recent hawkishness of Harker and others.

If the minutes are hawkish and hint that a rate hike will be on the table for March’s meeting, the US Dollar will continue to test its highs against the Euro.

However, the US Dollar will face key psychological resistance unless US President Trump finally details his fiscal policy measures.

In terms of data, Wednesday will see the publication of IFO’s February business confidence surveys from Germany, as well as January’s final Eurozone Consumer Price Index (CPI) results.

If Eurozone inflation beats expectations, the Euro could recover as European Central Bank (ECB) tightening bets will increase. However, a drop in inflation could leave the Euro even less appealing than it was on Tuesday.

US existing home sales figures from January will also be published on Wednesday, but US data is set to quieten down towards the end of the week.

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TAGS: Euro Forecasts