USD EUR Exchange Rate Rallies as ECB Cuts Inflation Forecasts

June 8, 2017 - Written by Toni Johnson

STORY LINK USD EUR Exchange Rate Rallies as ECB Cuts Inflation Forecasts

The USD EUR exchange rate has advanced by 0.3% today, although there has been little domestic cause for US enthusiasm. As well as rising crude oil stocks lowering oil prices for US exporters, Donald Trump has also been targeted in a potential lawsuit.

The Democratic Party plans to bring the case that Trump could be influenced by foreign governments, if they spend money in his global hotel chains. This news has weakened USD demand, ahead of a potentially historic Congress hearing.

The US Dollar may drop sharply in the near-term, when former FBI Director James Comey testifies to Congress. Comey is going on the stand after being fired by Trump, having allegedly been asked to drop an official investigation.

Comey has previously stated that Trump asked loyalty from him, and that he suggested an investigation into former National Security Advisor Michael Flynn should be ‘let go’.

Comey’s testimony is not predicted to create circumstances to impeach the President, but could nonetheless drain confidence in his leadership. If Comey’s recounts do trigger a slump in confidence about the Trump administration then the US Dollar could depreciate sharply.

The last US economic data of the week will be wholesale inventory figures, out on Friday. These are predicted to show a rise of 0.2%, which would indicate more products remaining unsold; such news could also weaken USD demand.

The Euro’s overall losses today have been triggered by European Central Bank (ECB) news, specifically relating to inflation forecasts.

The ECB has downgraded its Eurozone inflation estimates for the coming years, predicting 1.5% in 2017 compared to 1.7%, 1.3% in 2018 compared to 1.6% and 1.6% in 2019, down from 1.7%.

This outlook has panicked Euro traders, despite statements that the ECB is no longer considering cutting interest rates. Any pessimistic economic outlook generally leads to lower chances of a future ECB interest rate hike.

Looking ahead, the next major Euro movement is likely on Friday’s German trade balance stats. If the Euro has sufficiently recovered from today’s ECB influences, it could rise if the trade surplus grows.

The only other notable data on Friday will be Greek inflation and production figures, for May and April respectively. Inflation grew by 1.6% previously, but Greek real incomes have been poor in recent measures.

If inflation rises considerably then this could bring concerns of a national wage squeeze, which would lower confidence in Greek economic stability.

On the other side of trading, a rise in industrial production could reassure Euro investors. The previous production level was an impressive 8.7% and growth has been consistent over recent months, so another positive result is not out of the question.

Further ahead, June 11th will bring the first round of voting for the French parliamentary elections. Having won the presidency in May, Emmanuel Macron is now looking to fill the French parliament with his supporters.

Polls for the first round are in the President’s favour, having estimated 29.5% of the vote as going to Macron-supporting parties. This is compared to the rival Republican group on a predicted 23%.

If the weekend result puts Macron on track to a landslide victory, then the Euro could appreciate sharply going into next week.

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TAGS: American Dollar Forecasts Euro Forecasts