Euro US Dollar (EUR/USD) Exchange Rate Falls as the Fed Slashes Rates for First Time in a Decade
The Euro US Dollar (EUR/USD) exchange rate slumped overnight, and the pairing is currently trading at an inter-bank rate of $1.1035.
On Wednesday the US Federal Reserve slashed interest rates for the first time since 2008.
Despite this, the ‘Greenback’ rose to a two year high against the Euro as the Fed ruled out a lengthy series of rate cuts.
In a news conference following the bank’s decision to cut rates to 2.25%, Fed Chair Jerome Powell stated:
‘Let me be clear – it’s not the beginning of a long series of rate cuts.’
However, he also said: ‘I didn’t say it’s just one rate cut.’
While investors still expect one more rate cut in 2019, Powell’s unexpectedly hawkish comments decreased expectations for further rate cuts into 2020.
Commenting on this, Masafumi Yamamoto, Chief Currency Strategist at Mizuho Securities in Tokyo noted:
‘The comments by Powell were not particularly dovish, so this is confirmation that this is a small insurance cut.
‘This limits the Dollar’s downside from here. Rate cuts will be on the small side, but this still strengthens the case for a prolonged US economic expansion, which is positive for the Dollar long term.’
Euro (EUR) Exchange Rates Fall as German Manufacturing Plummets to 84-Month Low
On Thursday, data revealed that the Eurozone’s final manufacturing PMI slumped to 46.5 in July.
The single currency remained under pressure as confidence in the bloc hit its lowest levels since December 2012.
Looking at the bloc’s largest economy, German manufacturing plummeted to an 84-month low of 43.2.
Commenting on this, Chief Business Economist at IHS Markit, Chris Williamson said:
‘The Eurozone PMI dashboard is a sea of red, with all lights warning on the deteriorating health of the region’s manufacturers. July saw production and jobs being cut at the fastest rates for over six years as order books continued to decline sharply.
‘Rising geopolitical concerns, including trade wars and Brexit, and worries about slower economic growth both domestically and internationally were all widely reported as having subdued current demand and hit confidence in the outlook. The concern is that, while policymakers have become increasingly alarmed at the deteriorating conditions, there may be little that monetary policy can do to address these headwinds.’
US Dollar (USD) Exchange Rate Rises as US-China In-Person Talks Scheduled for September
Meanwhile, reports revealed that US and Chinese teams are preparing ‘good groundwork’ for the next round of in-person talks.
The Chinese Commerce Ministry revealed that the next round of face-to-face talks are scheduled to start in September.
On Wednesday, officials ended a brief round of talks in Shanghai which were labelled as ‘constructive’ by Beijing.
Talks concluded with little sign of progress with the exception of the agreement to meet in person again next month.
Euro US Dollar (EUR/USD) Exchange Rate Outlook: Disappointing US Non-Farm Payrolls to Weigh on USD?
Looking ahead to this afternoon, the US Dollar (USD) could continue to rise against the Euro (EUR) following the US ISM manufacturing PMI.
If manufacturing rises higher than expected in July, the ‘Greenback’ will receive an upswing of support.
Meanwhile, on Friday the Dollar is likely to remain under pressure ahead of the US non-farm payrolls.
If the number of jobs added to the economy in July does not rise as high as expected, the Euro US Dollar (EUR/USD) exchange rate could rise.