Robust US Growth Encourages US Dollar (USD) Exchange Rate Gains
UPDATE: The third quarter US gross domestic product data bettered forecasts this afternoon, clocking in at 3.5% on the quarter.
While this still represents a slowdown from the strong growth seen in the second quarter investors took encouragement from the data, pushing the US Dollar (USD) higher against its rivals.
As the figure is likely to add further fuel to the hawkish outlook of the Federal Reserve the odds of a December interest rate hike remain high, to the detriment of the Pound Sterling to US Dollar (GBP/USD) exchange rate.
European Central Bank (ECB) Decision Fails to Impress Euro to US Dollar Exchange Rate Traders
While the European Central Bank’s (ECB) October policy decision offered some relief to investors concerned about recent Eurozone economic and political news, the Euro to US Dollar (EUR/USD) exchange rate still fell on Thursday.
Since EUR/USD opened on Monday at the interbank level of $1.15, the pair has fallen by well over a cent.
On Thursday night, EUR/USD briefly touched a two-month-low of $1.13. While EUR/USD has recovered from that low, it is still on track to see at least a cent’s worth of losses on the week.
Most of the week’s losses have been due to Eurozone economic and political concerns weighing on the Euro.
The US Dollar, as the Euro’s biggest rival, has capitalised on market demand for safe haven currencies. On top of this, strong US data has also supported the US Dollar.
Euro (EUR) Exchange Rate Relief Limited as European Central Bank (ECB) Remains Cautious about Uncertainties
The European Central Bank (ECB) may have maintained its cautiously optimistic stance on the Eurozone economy but markets remain anxious.
Despite the recent Italian budget problem and the Eurozone’s slowing growth outlook, the ECB indicated that its policy outlook was unchanged.
The bank still intends to unwind its quantitative easing (QE) scheme before the end of 2018, and continues to indicate that Eurozone interest rates will remain frozen until the second half of 2019 at the earliest.
ECB President Mario Draghi generally expressed confidence in the economic outlook, but investors still became anxious when he began to discuss the uncertainties regarding Italy’s budget and Brexit. This led to Euro (EUR) weakness.
According to Ulrich Leuchtmann, currency strategist from Commerzbank:
‘There were no new details on monetary policy but the big question asked was whether the ECB would use its tool kit to respond to problems in Italy? He didn’t answer that question. Markets are slightly unnerved,’
US Dollar (USD) Supported by US Data Ahead of Key US Growth Projection
The US Dollar (USD) benefitted notably from the Euro’s weakness over the last week.
While this has been the primary cause of USD gains, the US currency has also found support on recent US data which has continued to indicate that the economic outlook is strong.
Thursday saw the publication of the US durable goods orders results from September, which beat forecasts by only falling from 4.6% to 0.8% rather than the predicted drop from 4.5% to -1%.
US pending home sales from September were stronger too, climbing from -1.9% to 0.5% rather than the forecast -0.1%.
The US wholesale inventories report fell short of forecasts, coming in at 0.3%, but this did little to damage the US Dollar’s strength.
However, speculation that today’s US growth data could show a notable slowdown has limited the US Dollar’s strength.
Euro to US Dollar (EUR/USD) Exchange Rate Outlook: Investors Await US GDP Figures and Next Week’s Eurozone Data
Since the European Central Bank (ECB) decision has passed investors are turning their attention towards key data due for publication over the coming week.
Before markets close for the week, US Gross Domestic Product (GDP) projections for Q3 will be published. Analysts expect US growth to have slowed from 4.2% to 3.3% quarter-on-quarter.
If US growth slows by more than expected, investors could lower their expectations of future US performance.
US Michigan consumer sentiment data will also be published this afternoon, and European Central Bank (ECB) President Mario Draghi will hold a speech.
Unless Draghi offers any surprises in his speech, Euro to US Dollar (EUR/USD) traders are more likely to anticipate next week’s trade session when the Eurozone’s latest growth and inflation projections will be published.