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Euro US Dollar Rate Drops As Eurozone Inflation Misses Forecast

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Euro-to-dollar-3

The Euro US Dollar (EUR/USD) Exchange Rate weakened on Thursday, as the inflation in the Eurozone fell further than expected.

Despite still being high, the news combined with sour market sentiments to cause EUR/USD to fall to around US$1.0315 at the time of writing, a marked decline of roughly 0.8% from Thursday’s opening rates.

Euro (EUR) Slips as Inflation Misses Forecast

The Euro (EUR) weakened against most major peers on Thursday, as October’s finalised inflation data printed below forecast. An increase to 10.7% was expected, but the final reading came in at 10.6%.

This is still a marked increase from last year’s readings, which were at 4.1%. However, while a substantial uptick in inflation usually prompts a currency to strengthen as investors anticipate interest rate hikes from the central bank, European Central Bank (ECB) policymakers took a decidedly dovish outlook.

With Bloomberg reporting that support for a 75bps rate hike is lacking, the single currency began to fall during Thursday’s session.

Analysts at ING explored the sentiment further. They stated: ‘ECB officials also appear to have dialed down their hawkishness. When arch-hawk Holzmann of the Austrian central bank is mindful that too strong tightening would not just lead to stagnation but to a recession, then markets should take note.’

Elsewhere, further developments in the Ukraine-Russia conflict served to further weaken the Euro. Following the unfortunate incident in Poland where a stray missile killed two civilians, Russia has renewed missile strikes against Ukrainian infrastructure and territories, leading to further casualties. As such, fears of escalation are once again stoked as the conflict shows little sign of abating.

US Dollar (USD) Climbs as Jobless Data Falls

bannerThe US Dollar (USD) strengthened against most major peers on Thursday, as the latest Jobless claims came in below forecast.

With the previous reading showing 226000 US people out of work, the fall to 222000 proved welcome news to USD investors, further a rally which was sparked by hawkish rhetoric from Federal Reserve officials.

The fall served to demonstrated that the US economy was resilient in the face of global economic uncertainty, and from an aggressive tightening policy from the Fed.

With a ‘hard landing’ for the US economy looking to be more unlikely, Fed officials reiterated their attitude towards interest rates. San Francisco Federal Reserve President Mary Daly explained that interest rates were likely to rise by another percentage point, and perhaps climb further.

Regarding the Fed’s tightening policy, Fed Daly stated: ‘Pausing is off the table right now. It’s not even part of the discussion. Right now, the discussion is rightly around slowing the pace and … focusing our attention really on what is the level of interest rates that will end up being sufficiently restrictive.’

Elsewhere, the continued deepening of the Ukraine-Russia conflict served to add to the ‘Greenback’s gains on Thursday. This was because the renewed Russian missile strikes created a risk-averse market sentiment, which sent investors flocking towards the safe-haven US Dollar.

Euro US Dollar (EUR/USD) Exchange Rate Forecast: Policymakers in Focus

Looking ahead, macroeconomic data pertaining the Euro US Dollar (EUR/USD) exchange rate is scarce until next week.

As such, the main focus may be speeches scheduled from both Central Banks. Federal Reserve Governor Michelle Bowman is due to deliver a speech, which may boost the ‘Greenback’ further if she brings further clarity to the Fed’s position on rate hikes.

For EUR, ECB President Christine Lagarde is scheduled to speak on Friday. If she continues with the ECB’s current dovish pivot, the single currency may continue to slip.

Elsewhere, any further developments in the Ukraine-Russia conflict may weaken EUR/USD, as they may prompt markets to sour further and cause risk-averse trade to continue.



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