The Euro to US Dollar exchange rate tumbled at the beginning of the week due to hawkish comments from New York Federal Reserve President William Dudley. However, EUR/USD has recovered from its lows as 2017 Fed rate hike bets remain below 50%. The pair has slipped from the week’s opening level of 1.1188 and currently trends at around 1.1160.
Euro (EUR) Benefits from Perceived Eurozone Stability
The Euro outlook has been sturdier in recent weeks as economic data in the bloc steadily improves, as does political confidence.
The past week has seen the party of new French President Emmanuel Macron win a strong majority in France’s legislative elections.
German Chancellor Angela Merkel has also indicated this week that she may be willing to consider Macron’s ideas for a Eurozone finance minister and Eurozone budget, as part of moves to reform and strengthen the Eurozone.
On Thursday the European Central Bank (ECB) published its latest economic bulletin. While it contained no surprises and had little effect on the Euro, the ECB was upbeat about the bloc’s recovery.
The ECB noted that the Eurozone recovery was ‘increasingly resilient’ and pointed out that the bloc was enjoying solid growth so far in Q2 2017.
US Dollar (USD) Mixed on Fed Rate Hike Uncertainty
Last week the Federal Reserve hiked US interest rates for the second time this year and since then investors have been speculating on whether or not to expect a third rate hike before the year ends.
The US Dollar started this week strongly, as New York Fed President William Dudley stated he was confident that US inflation and wage growth would rebound thanks to the tight US job market. His comments bolstered Fed rate hike bets.
However, since then other Fed officials have taken comparatively more cautious and dovish tones.
While Dudley is typically seen to represent the majority view of the bank, the cautiousness of other Fed officials has still weighed on Fed rate hike bets. On Thursday, bets of a third 2017 interest rate hike were below 50%.
This week’s US data has been unable to provide the US Dollar with any support so far. US existing home sales from May beat expectations of -0.5% by printing at 1.1% while April’s house price index unexpectedly improved to 0.7% and beat 0.4% forecasts.
The latest US jobless claims report was slightly disappointing as more jobless claims were made than expected. However, jobless claims remain at historically low levels.
EUR/USD Forecast: Eurozone PMIs Ahead
Friday will see the publication of most of this week’s key data from both the Eurozone and the US, so Euro to US Dollar exchange rate movement is expected.
The biggest focus is likely to be on the Eurozone’s preliminary June PMIs from Markit, which will give markets an indication of how the Eurozone economy has performed this month. Germany’s manufacturing PMI and the Eurozone’s overall figures will be the most influential.
Eurozone PMIs are predicted to have slowed following a strong performance in April and May, but if they come in worse than expected the Euro is likely to weaken. If they impress however, EUR/USD could recover and end the week closer to its best levels.
Other notable Eurozone data due for publication includes final Q1 Gross Domestic Product (GDP) results from The Netherlands and France.
US data will also be published on Friday, including new home sales from May and Markit’s preliminary PMIs for the US.
The US Dollar is more likely to move in reaction to Fed rate hike bets however, as Friday will see speeches from Fed officials including Dudley, Bullard, Powell and Mester.