EUR to USD Exchange Rate Continues to Slide despite Fed Interest Rate Cut Bets

June 14, 2019 - Written by David Woodsmith

STORY LINK EUR to USD Exchange Rate Continues to Slide despite Fed Interest Rate Cut Bets

While concerns persist about the worsening US economic outlook and rising Federal Reserve interest rate cut bets, the Euro to US Dollar (EUR/USD) exchange rate has fallen this week. Investors are too concerned about the possibility of a more dovish European Central Bank (ECB) to buy the Euro versus the safe haven US Dollar.

After a stronger performance towards the end of May and the beginning of June on rising Federal Reserve interest rate cut bets, EUR/USD fell back from its highs this week.

EUR/USD opened the week near a high of 1.1343, the pair’s best level since March, but after holding its ground for a few sessions the pair has tumbled. At the time of writing on Friday, EUR/USD was trending closely to a weekly low of 1.1163.

Both currency outlooks remain fairly weak. The Euro is weighed by concerns that the European Central Bank could become more dovish, while the US Dollar is held back by concerns of a slowing US economy.

EUR Exchange Rates Fail to Avoid Losses despite Fresh Eurozone Budget Hopes

The Euro and US Dollar are rival currencies that often see a negative correlation with one another. As a result, the US Dollar’s resilience on market safe haven demand has kept the Euro under pressure.

The Euro’s own support has been limited, making it easier for the US Dollar to benefit from safe haven demand.

Towards the end of the week, the Eurozone’s latest support was not enough to help the shared currency to sustain any solid recovery either.

France’s Finance Minister, Bruno Le Maire, played up progress towards agreeing a Eurozone-wide budget plan on Friday.

This gave the Euro a brief boost in support in the morning, but concerns quickly rose that it was merely a small step.

According to European Commissioner for Economic and Financial Affairs Pierre Moscovici:

‘It is the best agreement we could reach with the present state of play in Europe,

We must not forget some ministers were absolutely against the principle of the Eurozone budget.’

Overall, Euro investors also remained anxious that the European Central Bank (ECB) could still take a more dovish shift on Eurozone monetary policy if Eurozone data continues to disappoint investors.

This morning’s German wholesale prices and French inflation rate reports both fell short of expectations.

USD Exchange Rates Climbing on Safe Haven Demand as Federal Reserve Eyed

Following generally weaker demand in recent weeks on signs of weakness in the US economy and rising Federal Reserve interest rate cut bets, the US Dollar has been able to advance this week.

While investors remain highly concerned about US trade protectionism and bets that there may be multiple interest rate cuts from the Fed over the coming year, some analysts have argued that the interest rate cut bets are overdone.

According to Fritz Louw, Currency Strategist at MUFG Bank in London:

‘There is a risk that the Fed might not be as dovish as what markets expect next week,’

With speculation rising that the Fed might be less dovish than expected, and lingering US-China trade tensions keeping safe haven demand high, the US Dollar has recovered a little more towards the end of the week in anticipation of next week’s Federal Reserve policy decision.

EUR/USD Exchange Rate Forecast: Central Bank News to Dominate Outlook

Concerns about the Eurozone’s weaker economic outlook influencing European Central Bank (ECB) monetary policy has been a key cause of Euro movement recently, and the US Dollar has been driven by rising Federal Reserve interest rate cut bets.

With key Eurozone data and the Federal Reserve’s June policy decision expected over the coming week, Central Bank news looks likely to be the primary cause of EUR/USD movement.

Euro investors will be especially focused on data that could influence the outlook for Eurozone price pressures and economic performance.

In particular, the Eurozone’s final May Consumer Price Index (CPI) inflation rate, and the bloc’s Markit PMI projections for June, are the most likely to influence ECB bets and Euro movement.

The Federal Reserve policy decision on Wednesday could be the single most influential event of the week for EUR/USD though.

If the Fed is less dovish about the US economy than investors expect, the Euro to US Dollar exchange rate could weaken as the US Dollar would recover.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: American Dollar Forecasts Euro Forecasts