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September ECB Rate Cut Leaves Euro US Dollar (EUR/USD) Exchange Rate Flat

July 26, 2019 - Written by John Cameron

Euro US Dollar (EUR/USD) Exchange Rate Muted as 2019 Eurozone Rebound ‘Less Likely’

The Euro US Dollar (EUR/USD) exchange rate remained muted and the pairing is currently trading at an inter-bank rate of $1.1131.

On Thursday, the European Central Bank (ECB) left interest rates unchanged as widely expected.

The decision not to slash rates to an all-time low likely provided the single currency with an upswing of support on Thursday.

However, the bank revamped its rate guidance, which now states:

The Governing Council ‘expects the key ECB interest rates to remain at their present or lower levels at least through the first half of 2020’.

Speaking at a news conference, ECB President Mario Draghi noted that a rebound during the second half of this year was ‘less likely’.

He also noted that the economic outlook for the bloc was getting ‘worse and worse’.

Further weighing on the Euro, Reuters reported that following the meeting, ECB officials stated a rate cut in September was almost certain.

US Dollar (USD) Under Pressure as Fed to Slash Rates

Meanwhile, the ECB’s rate cut has left the ‘Greenback’ remains under pressure as markets expect the Federal Reserve to also slash interest rates next week.

This would be the first Fed rate cut in a decade which will likely cause the Dollar to slide.

Reports suggest the bank will slash interest rates by 25 basis points rather than the more aggressive 50 basis point cut.

Commenting on this, Chief Financial Economist at Jefferies, Ward McCarthy said:

‘Draghi made a lot of promises but he didn’t do anything actually. He came out of the starting gate fast, but the follow-through did not deliver on those expectations. I think the expectation was that he would be more committal than he was. There was an expectation that the ECB was ready to move sooner. This has knock-on effects for expectations for the Fed next week. The thinking is maybe those that were expecting a 50 basis point cut should downgrade those expectations.’

EUR/USD Flat as US Durable Goods Rebound in June

On Thursday, data showed that US durable goods orders rebounded in June.

Following two previous months of sharp declines, US durable orders rose by a higher-than-forecast 2%.

Added to this, the US Commerce Department stated the proxy for business spending plans, orders for non-defense capital goods rose by 1.9%.

Commenting on this, Economist at Citi in New York, Veronica Clark said:

‘The stronger-than-expected orders are a positive sign that business investment and manufacturing sector activity have not weakened substantially further following softness earlier in the year.’

US Jobless Claims Falls to Three Month Low

Meanwhile, further data revealed weekly US jobless claims fell to a three-month low.

In the week ending 20 July, initial claims for unemployment fell by 10,000 to 206,000.

According to the Labour Department, this was the lowest level since mid-April.

This provided the Dollar with an upswing of support as the data points towards a sustained labour market despite signs the economy is losing momentum.

Euro US Dollar Outlook: Will Lower than Forecast US GDP Weigh on USD?

Looking ahead to this afternoon, the US Dollar (USD) could slide against the Euro (EUR) following the release of the US GDP data.

If GDP does not rise as high as forecast during the second quarter, the ‘Greenback’ could slide.

Meanwhile, at the start of next week the Dollar could continue to slide following the release of the Dallas Fed Manufacturing Activity.

If July’s manufacturing activity slides further than expected, the Euro US Dollar (EUR/USD) exchange rate may rise.

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