EUR USD Exchange Rate Update: Euro Advances as Irma Bears Down on Florida

September 8, 2017 - Written by Tim Boyer

STORY LINK EUR USD Exchange Rate Update: Euro Advances as Irma Bears Down on Florida

Trading in the region of 1.2068 today, the Euro is currently near the highest exchange rate against the US Dollar since January 2015.

Draghi Aftermath Leaves EUR Traders Uncertain

The Euro rose sharply against the US Dollar on Thursday, but today’s advance is primarily due to the USD being weaker.

Today’s domestic data has largely been disappointing, with the German trade surplus reducing in July. While a surplus reduction had been forecast, the actual dip from 22.3bn to 19.5bn proved greater than expected.

Looking back, yesterday’s Euro-boosting ECB news has failed to provide consistent support for the single currency.

After news of another interest rate freeze, ECB President Mario Draghi stated that the central bank was not yet ready to consider tapering quantitative easing or raising interest rates.

Draghi did, however, emphasise that the ECB could put these considerations at the top of the agenda during October’s meeting. While not a guarantee by any stretch of the imagination, this statement still raised trader hopes of near-term monetary policy action.

US Dollar Slides as Florida Faces Destructive Force of Irma

Just a week after Hurricane Harvey caused billions of Dollars of damage on the US south coast, another Hurricane, Irma, is well on the way to making landfall in Florida.

Alarmingly, the category 5 hurricane has shown little signs of slowing down before it hits dry land, which only amplifies the possible destructive effects of the weather system.

Concerns over just how bad Irma could be have led to the US Dollar sliding in value, with traders looking to calculations of the damages once the historic storm has finally passed. This US Dollar slump comes in spite of three recent Fed speeches, all of which were relatively optimistic when it comes to interest rates.

Over Thursday afternoon and Friday morning, all three Fed speakers gave a rare show of unity by broadly supporting a gradual program of higher interest rates in the future. Starting off the statements was Loretta Mester, who said;

‘Because we know that it takes some time for monetary policy to work itself through the economy, we can't wait until these [inflation] policy goals are fully met to act.

We need to assess what incoming information is telling us about where the economy is going over the medium run, and the risks around that medium-run outlook, and set policy appropriately’.

Mester emphasised the problems of low inflation, stating that;

‘It can lead consumers and businesses to delay purchases and it increases debt burdens, either of which could slow the economy. In my view, if economic conditions evolve as anticipated, I believe further removal of accommodation via gradual increases in the Fed funds rate will be needed and will help sustain the expansion’.

Sticking to a similar line was fellow Fed official William Dudley;

‘Even though inflation is currently somewhat below our longer-run objective, I judge that it is still appropriate to continue to remove monetary policy accommodation gradually. I expect that the U.S. economy will continue to perform quite well’.

Completing the hat trick of hawkish policymakers was Esther George, who gave her backing to a course of gradual, sustained interest rate hikes;

‘This [rate hike] approach is one that will be gradual, it will be systematic, and I think it will be pretty well-telegraphed. There is more work to be done, in my view, if we are going to sustain the growth that we see...[and] we will need to move that interest rate to more normal levels’.

EUR USD Exchange Rate could Worsen on Additional Fed Remarks

Closing off this week’s notable economic events will be a fourth Federal Reserve speech, this one coming from Patrick Harker this afternoon.

Harker is considered a neutral policymaker, so his remarks could go either way. If he echoes George, Mester and Dudley in supporting higher near-term interest rates then the US Dollar could move in reverse and rise against the Euro.

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TAGS: Euro Forecasts