EUR to USD Exchange Rate Continues Climb Despite Draghi Misunderstanding

June 29, 2017 - Written by Toni Johnson

STORY LINK EUR to USD Exchange Rate Continues Climb Despite Draghi Misunderstanding

Wednesday’s news that European Central Bank (ECB) President Mario Draghi had been misinterpreted by markets has failed to knock the Euro to US Dollar exchange rate down. The pair continues to gain as low Fed rate hike bets keep ‘Greenback’ movement limited.

EUR/USD began this week trending relatively flatly in the region of 1.1190. Since Tuesday however, the pair has rallied and by this morning EUR/USD was trending near 1.1427 – its highest level in over a year.

EUR Sturdy Despite Draghi’s Caution

While many investors sold the Euro from its highs following a European Central Bank (ECB) clarification on Wednesday, it was able to hold its ground against a weakened US Dollar and keep advancing.

ECB President Mario Draghi indicated earlier in the week that the ECB had to be ‘prudent’ when it came to adjusting its aggressive quantitative easing (QE) program.

Markets perceived this as meaning the ECB was planning to tighten monetary policy much sooner than expected, perhaps even later in the year.

However, ECB sources clarified on Wednesday that Draghi had merely intended to prepare markets for the possibility of policy adjustment being discussed, rather than necessarily committing to lightening the QE program.

Since then the Euro has weakened slightly, but it has been able to hold most of its gains against the US Dollar.

Despite mixed Eurozone inflation stats this week, the ECB has remained optimistic that slowing inflation is due to global oil price drops rather than deflation risks in the Eurozone.

Italy’s inflation is projected to slow to 1.2% year-on-year in June, with Spain’s projected to drop to 1.5%. On the other hand, Germany’s inflation projections beat expectations and came in at 1.6% year-on-year and 0.2% month-on-month.

The week’s other Eurozone data has been largely optimistic. Thursday saw the publication of the Eurozone’s business confidence surveys from June, which all beat expectations.

Business confidence jumped from 0.9, past the expected 0.94 to 1.15. Services sentiment climbed from 13 to 13.4 rather than dropping, economic sentiment advanced from 109.2 to 111.1, and industrial sentiment unexpectedly jumped from 2.8 to 4.5.

USD Limp as Fed Rate Hike Bets Remain Low

US Dollar traders don’t have much confidence that the Federal Reserve will hike US interest rates a third time before the end of 2017, as US ecostats continue to underwhelm and Federal Reserve officials take on highly mixed tones.

Earlier this week, Fed Chairwoman Janet Yellen held a speech in which she hesitated to go into detail on the Fed’s monetary policy outlook.
As she didn’t provide the reassurance markets were hoping for, Fed uncertainty worsened and the US Dollar weakened.

Thursday’s data offered the US Dollar some support, as the final Q1 Gross Domestic Product (GDP) results beat expectations and came in at 1.4% quarter-on-quarter.

EUR/USD Forecast: Eurozone Inflation Stats Due Friday

After mixed Eurozone inflation data published so far this week, Friday’s June inflation projection for the overall currency bloc is unlikely to impress.

However, if it considerably beats expectations the Euro to US Dollar exchange rate could see an increase in demand and likely end the week near its best levels in over a year.

There’s plenty of other important data for Euro US Dollar traders to react to on Friday too. Germany’s May retail sales stats will be published, as well as Germany’s June unemployment figures.

Over in the US, Friday will see the publication of June’s Chicago PMI as well as Michigan University’s final surveys from June.

USD traders are likely to focus most on the Michigan inflation expectation print. If it beats expectations, the US Dollar could advance as it would indicate that US inflation is expected to improve quicker than expected.

US inflation has been one of the primary concerns of markets, as slowing inflation would make it more difficult to justify a third 2017 US interest rate hike from the Federal Reserve.

However, with the Euro outlook overall stronger this week, the Euro to US Dollar exchange rate is still likely to end this week higher.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Euro Forecasts