The Euro is performing well today thanks to steady German consumer confidence survey results and the prospect of a new deal to ease the stress on Italian banks. Meanwhile, the US Dollar is soft ahead of today’s Federal Reserve interest rate decision.
EUR/USD Advances on German Consumer Confidence
According to the GfK Consumer Confidence survey, sentiment in Germany remained roughly the same during January, with a drop in income expectations being balanced out by a slight rise in economic outlook and willingness to buy. Economic expectations climbed, with the index reaching 4.2 after six months trending down (well above the index average reading of 0) although sentiment is down significantly compared to the same reason last month. Willingness to buy saw a steady increase, with the index reaching a six month high of 52.7.
The Euro has also been strengthened by a deal between Italy and the European Union to help Italian banks offload high volumes of underperforming loans in an attempt to boost stability.
Forthcoming Federal Reserve Interest Rate Decision Softens USD/EUR
The future of US interest rates has been thrown into disarray recently thanks to the continued worsening of global conditions. The stock markets, led by mass sell-offs in Beijing, have seen equities lose nearly -$8 trillion (€7.4 trillion) during the first month of the year, while oil prices have fallen to historic lows of around $27.50 per barrel and has since hovered around the $30 per barrel mark.
In the face of these recent developments, many have questioned the wisdom in delivering another four interest hikes during 2016, as originally suggested by the Federal Reserve. Recent figures from Commerzbank regarding fed futures prices suggest there is now only a 22% probability of an interest rate hike in March, where before it was widely believed the end of Q1 would see further tightening.
Economists believe that the Federal Open Market Committee (FOMC) will only be able to deliver three rate hikes this year, while the futures market has currently priced in only two. Some are claiming that raising interest rates in the first place was a mistake and that the FOMC should cut rates back down to 0.25% at today’s meeting. When asked by the Treasury Committee recently whether the US hike had caused the turmoil in the financial markets, Bank of England (BoE) Governor Mark Carney agreed that it was a contributing factor, although he said it was not the cause.
Euro to US Dollar (EUR/USD) Exchange Rate Forecast: ‘Greenback’ Soft Ahead of Fed Rate Decision
Some notable US data is due out today, including Mortgage Applications and New Home Sales, although these will likely be mostly overlooked as the interest rate decision announcement approaches. Crude Oil Inventories could spark more movement if they show a large increase in stockpiles, which will send oil prices down on the prospect of lowering demand.