EUR to USD Exchange Rate Tumbles as Federal Reserve Eases Market Fears

June 15, 2017 - Written by David Woodsmith

STORY LINK EUR to USD Exchange Rate Tumbles as Federal Reserve Eases Market Fears

After a brief surge to a fresh 2017-high on Wednesday, the Euro to US Dollar exchange rate tumbled and continued to fall on Thursday due to a lack of strong Eurozone data and market confidence in the US economy.

Wednesday saw EUR/USD jump to a high of 1.1288, which was the pair’s best level since August 2016. On trending strongly for most of the week, EUR/USD fell to below the week’s opening levels on Thursday and hit a new weekly low of 1.1147.

EUR Fails to Find Support in Eurozone Data

The Euro has failed to hold its best levels in months this week due to a lack of strong influential data. Some investors have been selling the shared currency from its highs in profit-taking while Eurozone inflation concerns have also dampened Euro demand.

While Wednesday’s Eurozone industrial production and employment change reports came in better-than-expected, they were not influential enough to boost the Euro outlook.

Investors appear more concerned about Eurozone inflation. Thursday’s final May Consumer Price Index (CPI) figure from France failed to meet projections of 0.1%, coming in at an even worse 0% month-on-month.

The Eurozone’s April trade balance report also disappointed. Analysts had forecast that the trade balance would slip from €30.9b to around €27.2b but the surplus instead dropped from a revised €30b to just €17.9b.

USD Demand Improves as Federal Reserve Remains Optimistic

The US Dollar saw mixed movement earlier in the week as investors anticipated Wednesday’s US inflation data and Federal Reserve news. When Wednesday’s US inflation data from May was published, the US Dollar briefly plunged.

US consumer prices slowed further than expected in May. Analysts had forecast that US inflation would slow from 2.2% to 2% year-on-year and from 0.2% to 0.1% month-on-month.

The final May results of 1.9% year-on-year and -0.1% month-on-month caused investors to worry that US inflation would not be able to support a third US interest rate in 2017 and the US Dollar dropped.

Investors were slightly reassured following the Federal Reserve’s policy decision on Wednesday evening.

As expected, the Fed hiked US interest rates – the second interest rate so far this year. The Fed also indicated that its interest rate outlook had not worsened despite this week’s inflation data.

However, the Fed did lower its inflation forecast for 2017. The Fed no longer expects inflation to remain near the 2% inflation target.

Analysts and investors are still unsure if the Fed will manage a third 2017 US interest rate hike. Bets of another 2017 rate hike are currently around just 35%.

Thursday’s US data didn’t have any notable effect on US Dollar exchange rates. US industrial production failed to meet expectations in May but June’s empire state manufacturing index jumped far higher to 19.8 after a disappointing -1 result in May.

EUR/USD Forecast: Eurozone Inflation Data Ahead

Friday will see the publication of the Eurozone’s final May Consumer Price Index (CPI) report. After French inflation failed to meet expectations on Thursday, a disappointing inflation figure for the overall Eurozone would have a negative effect on the Euro to US Dollar exchange rate.

Friday’s other Eurozone data includes Q1 wage growth results for the bloc, and April trade balance data from Italy and Ireland.

As for US data Friday’s Michigan consumer sentiment survey from June, as well as May building permit and housing start reports could influence the ‘Greenback’.

With EUR/USD hitting its lowest levels in over a week on Thursday, it’s unlikely that Friday’s data will boost the pair back to the week’s opening levels. The US Dollar would weaken however if US political uncertainties worsen.

Next week’s Eurozone data PMI is likely to influence EUR/USD exchange rates, but investors may react to the final round of French legislative elections when markets open on Monday morning.

The US economic calendar will be a little quieter in the coming week, but existing home sales and new home sales data from May could influence USD movement slightly.

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TAGS: American Dollar Forecasts Euro Forecasts