EUR/USD Exchange Rate Slumps -0.6% ahead of High-Impact Confidence Stats

January 29, 2018 - Written by Frank Davies

STORY LINK EUR/USD Exchange Rate Slumps -0.6% ahead of High-Impact Confidence Stats

Over the previous week, the Euro to US Dollar exchange rate rose by a moderate amount, thanks to a late-week boost from 2018’s first European Central Bank (ECB) policy meeting.

The EUR/USD exchange rate opened in the region of 1.2244 on 22nd January, later closing higher around 1.2428 on 26th January.

Notable Eurozone news included reports of rising economic confidence levels, both in Germany and in the Eurozone as a whole.

Additional support came from PMI activity measures for January, which showed optimistic estimates for growth during the first month of 2018.

Although German manufacturing activity was suspected to have slowed in January, the overall Eurozone composite reading still showed growth.

The biggest Euro boost came with the ECB policy meeting, however, or more specifically from a speech made by ECB President Mario Draghi.

Mr Draghi’s comments didn’t point to any immediate adjustments to ECB monetary policy, but instead suggested that current Eurozone conditions had not worsened.

Given that Eurozone inflation has failed to consistently move towards the ECB’s 2% target, the implication was that there would be more notable inflation growth in 2018.

Draghi made it clear that the ECB would not be considering an end to quantitative easing in the near-term, but traders nonetheless graded his statements as more optimistic than pessimistic.

Discussing the wider Eurozone, Draghi forecast that;

‘The risks surrounding the Euro area growth outlook are assessed as broadly balanced.

On the one hand, the prevailing strong cyclical momentum could lead to further positive growth surprises in the near term.

On the other hand, downside risks continue to relate primarily to global factors, including developments in foreign exchange markets’.

UD Dollar traders paid close attention to the World Economic Forum (WEF) last week, which brought the first appearance of Donald Trump at the event since becoming President.

Although the venue was packed for Trump’s speech, he ended up delivering a remarkably subdued set of statements.

The main takeaway was Trump’s selling of the US as a place for other nations to invest in.

The sales pitch included the claim that the US is ‘competitive once again’, something that concerned some because of the implications for aggressive trading actions.

Trump has historically been frustrated with the balance of goods going in and out of the US, which for a long time has been heavy on imports.

Putting the brakes on a potential US-EU trading scuffle, a European Commission spokesperson has recently warned that;

‘The European Union stands ready to react swiftly and appropriately in case our exports are affected by any restrictive trade measures from the United States’.

Upcoming Eurozone Confidence Stats Trigger Trader Anxiety, EUR/USD Rate Decline

The Euro has fallen in value against the US Dollar today, declining because of uncertainty about Tuesday’s range of Eurozone confidence readings.

These will cover major areas such as economic sentiment and business confidence, as well as finalised consumer confidence.

Rising confidence readings would be a good start to 2018 for the Eurozone, but current estimates aren’t for universal growth in optimism across the currency bloc.

In more recent and better news, Belgium has seen an upgrade to its GDP growth rate figures for Q4 2017, although this hasn’t been enough to trigger a EUR/USD rate rise.

US Dollar to Euro Rate Rise Comes on Personal income Upgrade

The US Dollar has been in high demand today, rising in demand against the Euro and all of its regular peers.

This all-round appreciation is attributed to recent US personal income stats, which have shown a rise in December.

While the increase from 0.3% to 0.4% is only minor, it still has positive implications for the US economy in 2018.

Higher wage growth could translate to higher consumer spending, which in turn would increase the pressure on the Federal Reserve to consider higher interest rates.

Euro to US Dollar Forecast: EUR/USD Exchange Rate could Surge on Confidence and GDP Stats

As well as the confidence data mentioned above, the Euro to US Dollar exchange rate could also be affected by GDP estimates out on Tuesday morning.

The current expectation is for no change in the Q4 GDP growth flash figures, but if the estimates rise unexpectedly then the Euro could appreciate.

US Dollar movement could come from Donald Trump’s State of the Union Address, which will be taking place early on Wednesday.

Trump will be announcing his economic plans for the US this year; if they are deemed achievable and 'sensible' then the US Dollar could firm against the Euro.

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TAGS: Euro Forecasts