EUR USD Climbs as Eurozone Consumer Confidence Beats Expectations

September 21, 2017 - Written by Tim Boyer

STORY LINK EUR USD Climbs as Eurozone Consumer Confidence Beats Expectations

The Euro US Dollar exchange rate climbed today in the build-up to European Central Bank (ECB) President Mario Draghi’s welcoming address at the ESRB Annual Conference in Frankfurt and on the back of better-than-anticipated consumer confidence figures from the Eurozone.

USD Initially Bolstered by Hawkish Policy Meeting

EUR USD initially fell yesterday on a particularly hawkish shift in sentiment from the US Federal Reserve at their September policy meeting.

Whilst the Fed did not raise interest rates at this meeting, they did announce that they would begin reducing their $4.2 trillion balance sheet as early as October; an event that signalled the beginning of tighter monetary policy from the Fed.

This news was, however, outshined by the announcement that the Fed continues to project one more rate hike before the end of 2017, despite weakness being present in core inflation levels. This drove the market consensus for a December rate hike from a 50:50 split to 60:40 and so the ‘Greenback’ rose against the majors.

This climb did not last long, however, as markets soon considered the possibility that the ECB might follow suit, potentially announcing an October start for the tapering of their quantitative easing (QE) scheme.

The Euro also gained today on the possibility that Mario Draghi might mention something regarding monetary policy at his speech in Frankfurt, though it quickly became clear that Draghi would avoid directly discussing interest rates, instead focusing on the need for Governments to rely on their own tools to tackle local issues (rather than monetary policy).

Eurozone Consumer Confidence Beats Expectations, Euro Climbs

Eurozone consumer confidence defied expectations that it would remain flat by rising to -1.2 in September, up from the -1.5 figure in August.

Whilst this was only a slight improvement, it still marked the best reading since Q2 of 2001, further demonstrating a robust economic forecast for the Eurozone and also contributing to prospects of a hawkish ECB.

Traders soon reacted to this news by buying into the single currency, with the Euro increasingly seeming like the safer option in the wake of claims from Fed Chair Janet Yellen that the US economy would suffer in the short-term as a result of storms Harvey and Irma.

EUR USD Forecast: Volatility Ahead on EUR Markit Survey

There are a number of notable events tomorrow relating to the EUR USD exchange rate, foremost being a run of September Markit survey releases for France, Germany and the Eurozone, followed by another speech from Mario Draghi – this time in Dublin – and the French gross domestic product (GDP) print, which is currently forecast to remain stable.

The Eurozone’s composite Markit PMI for September is currently forecast to drop from 55.7 to 55.5 – an event that would likely shove the EUR USD exchange rate back into the ‘Greenback’s favour.

If, however, Draghi opts to mention Eurozone interest rates whilst in Dublin then the Euro could extend its gains into the week’s end.

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TAGS: Euro Forecasts