EUR/USD Holds Opening Levels as Markets Await US Growth Data

Modified: Friday, 27 October 2017 11:05 BST - Written by Toni Johnson

STORY LINK EUR/USD Holds Opening Levels as Markets Await US Growth Data

The Euro to US Dollar exchange rate is stuck around opening levels this morning, as markets await key US growth data.

The EUR/USD exchange rate is currently trading around 1.1633.

Latest ECB Survey of Professional Forecasters Supports EUR with Rising Inflation Projections

The latest European Central Bank (ECB) Survey of Professional Forecasters has cheered markets today by showing that independent economists still believe inflation will outpace estimates made by the central bank’s own economists.

Inflation estimates for 2018 and 2019 have not been changed since the last survey, but these remain above estimates from the ECB itself – raising hopes that the ECB may update its own forecasts during the December monetary policy meeting.

Additionally, analysts now expect consumer price growth of 1.9% in 2022, up from the 1.8% estimated just three months ago.

The outlook on economic growth has also been revised higher, with economists predicting Eurozone GDP will expand 1.9% next year and 1.7% in 2019; ten basis points higher than earlier forecasts in both cases.

Predictions for unemployment have also become more rosy, with economists cutting their predictions for joblessness by -0.2% for 2018, 2019 and the longer term.


Germany’s September import price index figures have also improved the outlook for inflation, after showing a stronger-than-expected rise.

Prices rose 0.9% on the month, against forecasts of 0.5%, which translated to 3% growth on the year, beating forecasts of 2.6%.

Higher import prices could be passed on to the consumer, pushing up inflation and helping support calls for further reduction of monetary stimulus from the ECB.

USD Quietly Confident ahead of Third-Quarter GDP Data Release

Finalised US gross domestic product figures from the third quarter are likely to show that the pace of annualised growth slowed from 3.1% to 2.5% during the July-September period.

Although annualised GDP is predicted to have slowed on previous levels, this is unlikely to settle the US Dollar, or undermine Fed rate hike bets, as much of the weakness will have come from the temporary disruption of the quarter’s extreme weather events.

Bank of the West Chief Economist Scott Anderson explained;

‘Despite the temporary disruption to construction and consumer spending that will be visible in the third quarter data, the real takeaway from the report will be how resilient overall U.S. GDP growth continues to be.’

In addition, Federal Reserve Chair Janet Yellen has previously cautioned that the hurricanes would have slowed GDP, so markets did much of their pricing-in for such a weakness when the storms originally struck.

It is therefore unlikely that the data today will weaken the 96.7% odds of an interest rate hike in December to the extent where the US Dollar is affected.

EUR Versus USD Forecast; What are the Banks Predicting?

ANZ believes that the EUR/USD exchange rate could face some downside pressures in the near-term, with the European Central Bank unlikely to tolerate any further strength in the Euro;

‘Although not a policy tool, the ECB’s upper tolerance level for EUR/USD may not be much more than 1.20. The ECB is of the view that the improved economic outlook is still contingent on ECB support and implicitly loose financial conditions.’

‘In the very short term, the euro is testing the downside, given the dovish undertone to ECB policy. But there are some interesting events that could add momentum to the move. These include the near-term path of US inflation, which is expected to gradually recovery towards 2%...in contrast to the anticipated near-term path of euro area headline inflation.’

Dankse Bank FX Strategy Research team also believes that the EUR/USD exchange rate could be vulnerable to downside movement, stating;

‘In the coming days, we would expect EUR/USD to settle around the 1.1750 level with the risk of next week’s FOMC meeting fuelling a move towards 1.1700 as focus returns to Fed’s determinedness to ‘normalise’.’

‘On the upside, we think resistance at 1.1910 (2-Aug high) will hold, but in order to revisit the 1.20s we would likely need to see better prospects of Eurozone core inflation edging higher on a sustained basis (a mid-2018 story) and/or markets to speculate (again) that the ECB is running into toolbox constraints.’

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TAGS: Euro Forecasts