Euro US Dollar (EUR/USD) Exchange Rate Flounders Today on Expectations of a Hawkish US Federal Reserve

Robust Eurozone Employment Fails to Support the Euro US Dollar (EUR/USD) Exchange Rate

The Euro US Dollar (EUR/USD) exchange rate extended its fall on Thursday, failing to find sufficient support in today’s run of domestic data releases from the bloc.

According to Eurostat, unemployment in the Euro Area printed at 8.6% in January – the lowest reading in more than nine years.

Beyond this, the number of unemployed dropped to 14.11 million in January, down from 14.12 million a month previously.

This steady drop underlined the fact that the Eurozone continues to move ahead with its economic recovery, but it should also be stressed that the recovery is not broadly based.

Italy, for instance – the third largest economy within the bloc – saw a rise in their unemployment rate to 11.1% – a worrying reading just days before the Italian general election.

Spain also continues to suffer from a high jobless rate at 16.3%, though this was a slight drop from the previous period.

In other news the bloc’s latest manufacturing purchasing managers’ index (PMI) reading printed at 58.6, down from the previous period’s 59.6 but above the forecast of 58.5.

This softer reading was largely due to supply bottlenecks within the private sector, with the industry struggling to keep up with demand.

Nevertheless, any score above the 50-point mark illustrates growth, rather than contraction, hence this reading is not considered poor.

Ultimately, however, the Euro continues to struggle in the wake of the US Dollar’s current rally, with the ‘Greenback’ successfully siphoning demand away from other currencies on the back of expectations of monetary tightening by the US Fed.

Hawkish Fed Chairman Powell Sends ‘Greenback’ Soaring – Euro US Dollar (EUR/USD) Exchange Rate Tumbles

The US Dollar (USD) hit a six-week high on Thursday, bolstered by what markets perceived to be an upbeat, and hawkish tone from the new Federal Reserve Chairman Jerome Powell.

Powell, discussing the US economy and monetary policy plans, hinted that interest rates could be raised four times this year, rather than the initially planned three.

When answering questions following his Congressional testimony Powell said the US economy was growing in strength, stating:

‘Some of the headwinds the US economy faced in previous years have turned into tailwinds. Fiscal policy has become more stimulative and foreign demand for US exports is on a firmer trajectory.’

This has prompted markets to price in a rate hike as early as March this year, with many now confident that the US economy could support it.

At a contrast, European Central Bank (ECB) President Mario Draghi stated earlier in the week that the slack in the Eurozone’s economy could be bigger than previously thought, with yesterday’s drop in the bloc’s inflation estimates for February also seeming to completely eliminate any possibility of policy changes from the ECB for some time.

Euro US Dollar (EUR/USD) Exchange Rate Forecast: US Private Sector Data Imminent

The Euro US Dollar (EUR/USD) exchange rate could see additional movement today depending on the performance of a run of notable US ecostats.

This will include the US ISM manufacturing readings for February, as well as personal income and spending readings and jobless claims figures.

Markets will be keeping a close eye on the US personal income figures in particular, with traders expecting a slip from 0.4% month-on-month to 0.3%.

This would reflect a drop in wages and salaries for this period, a prospect that could scupper market hopes for a rate hike in March.

If personal incomes beat expectations, however, then the US Dollar could extend its gains into the week’s end, with markets confident in the performance of the US labour market.

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron


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