EUR/USD Forecast: Euro Exchange Rates Climb on ECB Optimism about QE

Euro Climbs vs US Dollar on ECB Encouragement

The Euro to US Dollar (EUR/USD) exchange rate edged higher yesterday following positive statements from a European Central Bank (ECB) official, which raised the prospect of eventual ECB interest rate hikes.

ECB official Benoit Coeure encouraged Euro traders with his recent comments on monetary policy. When talking of an end of quantitative easing (QE) he stated that; ‘For me, it’s the logical conclusion. The economic environment is improving, price pressures are building and we’ve become less reliant on our monthly net purchases. So we can be hopeful that the October extension was the last one’.

This attitude indicated that the ECB might be willing to bring forward the end of its extensive bond-buying program, which could eventually lead to higher ECB interest rates.

German Political Problems remain Drag on Euro (EUR) Exchange Rates

Elsewhere in the Eurozone, the German political crisis has remained in the spotlight.

The ball is now in the German President’s court to resolve the issue of leadership, after Angela Merkel’s CDU/CSU union failed to form a working coalition.

Summing up President Frank-Walter Steinmeier’s task, Rheinische Post analysts said; ‘The German president, who is now as powerful as seldom seen in German constitutional history, holds the reins’.

US Dollar (USD) Struggling on Uncertainty about Future Rate Hikes

The US Dollar declined against the Euro on Wednesday and failed to perform particularly well against the other majors.

The lacklustre performance followed after a speech from Federal Reserve Chair Janet Yellen, which raised more questions than it answered.

Yellen stuck to her script and stated that US interest rates should keep rising gradually after she steps down in 2018.

What was unclear, however, was whether this attitude would actually be adopted by her successor, Jerome Powell.

Fed forward guidance strongly hints at a rate hike in December, but after that, the picture is less clear for anxious USD traders.

Disappointing Eurozone Activity Stats could cause EUR USD Exchange Rate Decline

The rest of the week doesn’t look too positive for the Euro, which could drop sharply if today’s manufacturing and services PMI scores disappoint.

For the most part, the French and German readings are expected to show lower economic activity in November.

Experts are similarly pessimistic about the Eurozone-wide readings, which are tipped to show either slowing activity or no noticeable change.

The US Dollar, meanwhile, could strengthen as US economists believe that US manufacturing and services activity will have risen in November, along with the overall composite reading.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard