Euro to Dollar Slides Below $1.18 - EUR/USD Forecast

Modified: Thursday, 8 January 2015 21:50 BST - Written by Toni Johnson

STORY LINK Euro to Dollar Slides Below $1.18 - EUR/USD Forecast

The Euro fell to its lowest level since 2005 against the US Dollar after economic data out of the Eurozone came in worse than forecast. The single currency weakened early in the session after data showed that new factory orders in the 19-member currency bloc’s largest economy declined in November, the report added pressure on the European Central Bank to introduce more monetary easing measures at its upcoming policy meeting.

The data released on Thursday showed that November’s factory orders in Germany fell and a decline in Eurozone consumer inflation expectations reinforced economist’s bearish views on the health of the single currency bloc. Concerns over the upcoming Greek general election due to be held on January 25th are also continuing to weigh heavily on the single currency. The outcome of the election is far from certain and economists are concerned that the vote could lead to a standoff between Athens and its troika of lenders.

‘In the run up to the ECB meeting on January 22 we expect more Euro short positions to be put in place. So while the Euro has fallen, we think there is further room, given expectations that QE may be announced at that meeting,’ said an economist from Nomura.

The US Dollar is expected to make further gains against the Euro over the coming days and weeks as economic data continues to show that the US and Eurozone economies are diverging in fortunes.

With the Eurozone economy, continuing to struggle the ECB is now expected to make further moves towards introducing more monetary easing measures. Data released earlier in the week showed that the region has slid into deflation territory and caused economists to hike their expectations for the central bank to take action at its next policy meeting.

In contrast, the Federal Reserve is expected to raise interest rates.

‘The Fed hinted that in its view the financial markets have not been pricing enough tightening, meaning that risks are balanced towards a hawkish surprise. All in all, the Fed bias is clearly Dollar supportive,’ said a currency strategist from ING.
Also supporting the US Dollar was the publication of data, which showed that fewer Americans than forecast filed for unemployment benefits last week. The number of people claiming unemployment benefits fell by 4,000 to 294,000.

The report also showed that US employers are finding it harder to fill positions, which in turn will likely lead to a pickup in wages.

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