ECB Economic Bulletin Shores up Euro to US Dollar (EUR/USD) Exchange Rate
Euro (EUR) exchange rates took encouragement from the European Central Bank’s (ECB) latest Economic Bulletin, which pointed towards inflationary pressure mounting in 2019.
This assessment gave investors fresh incentive to favour the single currency, even as the report also indicated that global growth is likely to slow further in the coming year.
While the ECB remains unlikely to raise interest rates in the near future, given the disappointing nature of recent domestic data, the Bulletin still fuelled hopes of a 2019 interest rate hike.
As a result, the Euro to US Dollar (EUR/USD) exchange rate recovered some of its lost ground on Thursday morning even as the general sense of market risk appetite began to ease.
US Dollar (USD) Exchange Rates Weighed Down by Worries Over Fed Chair’s Future
Speculation over the security of Fed Chair Jerome Powell’s position put the US Dollar (USD) under pressure in recent days.
Reports that Powell could be in the firing line for the decision to raise interest rates at the Federal Reserve’s December policy meeting weighed on USD exchange rates.
Even though officials denied these rumours, assuring investors that Powell’s job is safe, a sense of wariness continues to limit the strength of the US Dollar.
The unpredictable nature of the Trump administration remains a significant headwind for USD exchange rates as political developments drive market jitters.
EUR Exchange Rates Vulnerable to Softening German Inflation
The mood towards the Euro could sour ahead of the weekend, however, with the release of December’s German consumer price index data.
Forecasts point towards the headline inflation rate easing from 2.3% to 1.9% on the year, falling below the ECB’s 2% target once more.
This is likely to leave EUR exchange rates on a weaker footing, as weaker inflation in Germany is likely to drag down inflation in the Eurozone as a whole.
Without signs of resilient inflationary pressure the case for an ECB interest rate hike looks set to decline, leaving the single currency biased to the downside.
US Dollar (USD) Looks for Boost from Narrowed Advance Goods Trade Deficit
Demand for the US Dollar may pick up on the back of the latest advance goods trade balance figure, meanwhile.
A narrowing of the goods trade deficit could shore up USD exchange rates on Friday, encouraging a greater sense of confidence in the outlook of the US economy.
Even if the data surprises significantly to the upside, though, this is not likely to alter the current policy outlook of the Fed.
On the other hand, a widened deficit may give investors fresh incentive to pile out of the US Dollar ahead of the New Year.
As a larger deficit is likely to fuel the protectionist leanings of the Trump administration this could undermine market hopes that trade tensions could ease in the months ahead.
Any fresh signs that the US is continuing to pursue a policy of increased trade tariffs may give the Euro to US Dollar (EUR/USD) exchange rate a temporary boost.