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ECB Live: Euro to US Dollar Exchange Rate Rebounds Despite Fresh Caution from the European Central Bank

December 27, 2018 - Written by Tim Boyer

A brief surge in demand for the US Dollar overnight on Wednesday was short-lived. The Euro to US Dollar (EUR/USD) exchange rate quickly recovered during Thursday’s European session as the US Dollar tumbled, despite the latest economic bulletin from the European Central Bank (ECB) pointing towards further weakness in the Eurozone economy in 2019.

Since opening this week at the level of 1.1371, EUR/USD has largely trended with an upside bias due to global growth concerns and US government shutdown jitters weighing on the US Dollar.

EUR/USD briefly touched a weekly high of 1.1436 on Christmas Day, before slumping back down to a weekly low of 1.1347. EUR/USD didn’t trend this low for long however, and at the time of writing on Thursday was trending closer to the level of 1.1393.

EUR Exchange Rates Gains Limited as ECB Warns of Slowing Eurozone Growth

This week so far, a lack of notable Eurozone news has left the Euro to be influenced largely by the strength of the US Dollar.

The US Dollar is the Euro’s biggest currency rival and the two currencies share a negative correlation.

With the US Dollar weak for most of the week, even a relatively unappealing Euro has been able to trend higher versus the US currency.

A brief surge in demand for the US Dollar was the primary cause of brief EUR/USD losses on Wednesday night.

While EUR/USD saw slightly stronger performance on Thursday, the pair’s gains were limited as investors remained relatively cautious about the Eurozone’s economic outlook.

Following a cautious tone in its monetary policy decision earlier in December, the European Central Bank (ECB) ramped up concerns about slowing global economic growth in the bank’s latest bulletin, published today.

In the bulletin, the ECB said:

‘Looking ahead, global economic activity is expected to decelerate in 2019 and remain steady thereafter,

Global inflationary pressures are expected to rise slowly as spare capacity diminishes.

Underlying inflation is expected to increase gradually over the medium term, supported by the ECB’s monetary policy measures, the continuing economic expansion and rising wage growth,’

USD Exchange Rates Remains Unappealing as Global Growth Fears Intensify

Various factors weigh on the US Dollar this week, and despite the brief boost in demand the currency saw on Wednesday evening it ultimately remains fairly unappealing.

Throughout the week, US Dollar investors have been anxious about a US government shutdown.

The US Congress Senate failed to pass a funding bill due to US President Donald Trump’s insistence that it include funding for his controversial border wall plan.

Amid a lack of support for the bill, the US government saw its third shutdown of 2018 – and this one has lasted almost a week already.

Analysts are anxious that a prolonged shutdown could have a negative impact on the US economy.

On top of this, fears of a global economic slowdown predicted for 2019 have weighed heavily on market demand for the US Dollar.

In fact, as stock markets weaken on global growth fears the US Dollar has not been able to benefit from demand for safe haven currencies either.

According to Lee Hardman, Currency Strategist from MUFG, the Japanese Yen (JPY) is becoming more favoured to investors seeking to avoid risks:

‘On back of the global growth concerns and the sharp turnaround in markets today we have started to see the Yen regain its place as the safe-haven of choice,’

EUR/USD Exchange Rate Forecast: Key German Inflation Stats and US Home Sales Data Ahead

While the economic calendar has been quiet for most of the week, the Euro to US Dollar exchange rate is a bit more likely to be driven by Eurozone and US data before markets close on Friday.

Demand for the Euro is likely to be influenced by Germany’s December Consumer Price Index (CPI) inflation rate projection.

German inflation is forecast to have slowed year-on-year, but have risen from 0.1% to 0.3% month-on-month.

If the German inflation rate beats expectations it could bolster speculation that the European Central Bank (ECB) could still hike Eurozone interest rates at some point in 2019.

However, weaker inflation could drag on the Euro and make it harder for the Euro to US Dollar to sustain any gains this week.

The Euro to US Dollar exchange rate could also be influenced by US Chicago PMI and pending home sales data on Friday.
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