The Euro (EUR) plummeted against the US Dollar (USD) this afternoon as Federal Reserve Chair Janet Yellen gave an upbeat report on the US economy as she testified in front of Congress.
At the time of writing EUR USD was trading at $1.1418, down around 0.49% from the pairing’s starting level of $14.638
US Dollar (USD) Strengthens as Yellen Faces Congress
The Euro US Dollar exchange rate tumbled by around half a cent this afternoon following a testimony by Janet Yellen in front of Congress.
While some investors were slightly dismayed by the tone of her statement as it suggested the Fed would seek a more gradual tightening of monetary policy, her upbeat outlook for future growth helped to dispel some recent concerns over the US economy following a string of lacklustre US data in recent months.
In prepared remarks to Congress Yellen said;
‘Looking ahead, my colleagues on the F.O.M.C. and I expect that, with further gradual adjustments in the stance of monetary policy, the economy will continue to expand at a moderate pace over the next couple of years.’
She also added that the US was benefiting from an improved global economy, with strong growth in other countries helping increase demand for US exports.
‘A strengthening in economic growth abroad has provided important support for U.S. manufacturing production and exports.’
Yellen also made mention of the recent softening in inflation but appeared to be largely unfazed as she said it’s just temporary and she forecasts inflation will pick back up in 2018.
Uptick in Eurozone Industrial Output Not Enough to Prevent Euro (EUR) Losses
Meanwhile the Euro struggled to hold onto its recent gains today despite data released this morning showing that Eurozone Industrial Production grew at its fastest pace in five-years in May.
According to data released by the European Union’s official statistics agency, Eurostat, industrial output in the Eurozone jumped from 0.3% (downwardly revised from 0.5%) to 1.3% in May, beating expectations it would only reach 1.1% and achieving its fastest pace of growth since August 2011.
After production slipped in the first quarter thanks to the milder winter weakening demand for electricity and heating, today’s data will be a welcome relief to EUR investors as analysts forecast that output will have normalised in the second quarter and that it is a positive sign towards future growth.
However, undermining the data were comments from European Central Bank (ECB) policymaker Ignazio Visco, who suggested that the bank’s stimulus programme would have to remain ‘expansive’, indicating that interest rates were unlikely to rise in the immediate future despite strong economic data from the Eurozone in the first half of the year.
EUR USD Forecast: Rise in German Inflation to Prompt Euro Rally?
The EUR USD exchange rate may mount a swift recovery tomorrow morning with the release of Germany’s latest CPI data, with economists predicting that inflation will have strengthened from 1.5% to 1.6% last month.
Meanwhile the US Dollar may be forced to retreat on Friday with the release of America’s own inflation report, which analysts predict will show that inflation slumped from 1.9% to 1.7% in June.