Euro to US Dollar (EUR/USD) Exchange Rate Dips on Rumoured Italian QE Plans

August 29, 2018 - Written by Tim Boyer

STORY LINK Euro to US Dollar (EUR/USD) Exchange Rate Dips on Rumoured Italian QE Plans

On Tuesday, the Euro to US Dollar (EUR/USD) exchange rate opened at a level of $1.1682 and closed trading slightly higher around $1.1691.

This appreciation was thanks to Monday’s German economic confidence data, which showed rising levels of optimism across the board.

Ifo’s business climate, current conditions and expectations readings all rose above forecasts, prompting Ifo President Clemens Fuest to remark:

‘Business confidence in German firms has improved noticeably. The Ifo Index rose to 103.8 points in August after 101.7 points in July.

‘The companies were once again more satisfied with their current business situation. Business expectations were revised noticeably upwards.

‘In addition to a robust domestic economic situation, the truce in the [Eurozone] trade conflict with the US contributed to improved business confidence.

‘The German economy is performing robustly. Current figures point to economic growth of 0.5% in the third quarter.’

The only influences on the US Dollar yesterday were expectations about Wednesday’s US GDP reading; USD traders were unsure about whether this would show as-expected levels of economic growth.

Concerns about Italian Debt Plans Cause Euro to US Dollar (EUR/USD) Exchange Rate Losses

The Euro (EUR) has made a minor loss against the US Dollar (USD) today, although this is primarily because of USD strength as the Euro has appreciated in other currency pairings.

Today’s main negative Eurozone news has been that Italy is reportedly seeking quantitative easing (QE) from the European Central Bank (ECB).

This isn’t an entirely verified plan, but the idea of Italy being subject to economic stimulus measures through QE has still rattled Euro traders.

QE involves the ECB buying bonds and debt from countries to stimulate economic growth and it can take years to reverse after the program is completed.

Other Eurozone news hasn’t been quite so negative – the GfK German consumer confidence reading for September has dipped from 10.6 points to 10.5.

This still means that there are a majority of optimistic consumers compared to pessimistic ones, so the news hasn’t been especially harmful to Euro demand.

US Dollar to Euro (USD/EUR) Exchange Rate Rises as US GDP Beats Forecasts

Better-than-expected US GDP data has boosted US Dollar (USD) demand today, leading to gains against the Euro (EUR) and most other peers.

Recent second estimates for US GDP growth in Q2 2018 have come in above forecasts, showing an estimated quarter-on-quarter rise from 2.2% to 4.2% instead of the expected 4%.

This has broadly been seen as good news for future US economic growth, but Reuters analysts have received the news cautiously:

‘The robust growth in the second quarter is unlikely to be sustained given the one-off drivers such as a $1.5 trillion tax cut package, which provided a jolt to consumer spending after a lacklustre first quarter, and a front-loading of soybean exports to China to beat retaliatory trade tariffs.’

The other major US news at present concerns trade deals – the US has seemingly managed to reach an agreement with Mexico over a reformed North American Free Trade Agreement (NAFTA) deal.

Canada, the other member of NAFTA, still needs to agree to any proposed changes but for now this suggests that the US won’t be tearing up its existing trading agreements anytime soon.

Euro to US Dollar Exchange Rate Forecast: Will Eurozone Confidence Scores Extend EUR/USD Losses?

The Euro (EUR) is at risk of making additional losses against the US Dollar (USD) on Thursday, when a range of Eurozone economic confidence measures will come out over the morning.

These are predicted to show a slight decline in levels of economic optimism across the board, which could add up to cause EUR/USD exchange rate losses.

On the other side of the currency pairing, the next high-impact US data will be out later on Thursday during the afternoon.

US personal spending and personal income stats for July are due out and current expectations are for a slight dip in income growth but 0.4% growth in spending levels.

If both readings show unexpected growth then the US Dollar could rise further against the Euro.

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TAGS: Euro Forecasts