Eurozone Optimism Holds up Euro to US Dollar Exchange Rate (EUR/USD) after Forecast-Beating Confidence Stats

Better-than-Expected Confidence Data Leaves EUR/USD Exchange Rate Trading Closely

The Euro to US Dollar (EUR/USD) exchange rate has been trading in a narrow band today following the release of Eurozone confidence data for February.

On the month, confidence levels have fallen but not to the levels predicted by some economists.

European Commission respondents have called these levels of optimism ‘historically elevated’, while higher confidence in Italy has further reassured Euro traders.

Italy is gearing up for a general election on 4 March, so higher confidence a week beforehand bodes well for future stability.

Bundesbank Caution Prevents Euro to US Dollar Rally

While confidence data has supported the Euro today, the single currency hasn’t rallied against the US Dollar due to a downbeat monthly report from Bundesbank.

The banking institution has raised its provisions for risk, citing continued asset purchasing at the European Central Bank (ECB) as a factor in this outlook.

Bundesbank President Jens Weidmann spoke in Frankfurt about the bank’s forecast, saying:

‘The continuation of [ECB] asset purchases has driven up interest-rate risk. It would be wrong to benchmark the monetary-policy decisions against the central bank’s profit or loss.’

That said, Mr Weidmann also predicted that the ECB could finally shut down its long-running asset purchase programme this year:

‘If the upturn continues and prices rise accordingly, I see no reason why the ECB Governing Council shouldn’t end the net asset purchases in the current year.’

US Dollar to Euro Exchange Rate Close ahead of Powell Testimony

The US Dollar to Euro (USD/EUR) exchange rate has been fairly flat of late, with the USD also making minimal movement against its other currency peers, such as GBP. AUD and NZD.

There has been limited US economic data out recently, so the US Dollar has instead been influenced by speculation about an upcoming Federal Reserve event.

Fed Chair Jerome Powell will be making his debut before Congress this afternoon, when he will be questioned on his plans for monetary policy.

Mr Powell was considered to be more pro-action before he was chosen to take over from previous chair Janet Yellen.

The US economy is currently at a crossroads in terms of its future direction, so traders are understandably cautious ahead of Mr Powell’s remarks. This has had the effect of restricting USD trade.

Euro to US Dollar Exchange Rate Forecast: Risk of EUR/USD Decline on Eurozone Inflation Data

The Euro to US Dollar exchange rate (EUR/USD) could fall tomorrow, when the latest Eurozone inflation rate reading will be released.

The initial ‘flash’ estimate for inflation in February is tipped to show a decline from 1.3% to 1.2% year-on-year.

Lower inflation in the Eurozone is a concerning development, as it represents a move away from the European Central Bank’s (ECB) 2% target.

While ECB policymakers take other indicators into account with their interest rate decisions, inflation is a major factor.

Another data release that could devalue the Euro tomorrow will be the GfK consumer confidence reading for March – this is predicted to show a decline.

On the other side of the EUR/USD pairing, the US Dollar may be influenced by Powell’s testimony today, along with GDP growth rate figures out on Wednesday.

If Powell sounds like he will be a steady hand at the Fed, the US Dollar could rise sharply against the Euro.

Looking further ahead, however, the US Dollar could see some losses on Wednesday if the quarter-on-quarter GDP growth reading is revised down, as predicted.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon