EUR/USD Exchange Rate Edges Higher, Eurozone Economic Optimism Returns
The Euro US Dollar (EUR/USD) exchange rate edged higher to around US$1.109 today after yesterday saw the European Central Bank (ECB) unveil fresh stimulus measures to bolster the flagging Eurozone economy.
The ECB said it would restart quantitative easing by buying €20 billion of bonds a month from November 1. The central bank also cut its deposit rate to -0.5%, and indicated that rates would remain at record lows until Eurozone inflation improves.
The Euro benefited from comments from Mario Draghi, the President of the ECB, who called on EU governments to take greater steps to reboot growth – by ramping up public spending and cutting taxes – and thus improving sentiment in the Eurozone economy today.
Mr Draghi commented:
‘The [stimulus] package is quite powerful, both in the short term but also in the long run.’
The EUR/USD exchange rate rose following today’s release of the Q2 labour cost figure, which improved unexpectedly from 2.5% to 2.7%.
In European political news, the single currency edged higher on optimism surrounding the UK’s Brexit developments. This follows House of Commons Speaker John Bercow’s vow to stop Prime Minister Boris Johnson illegally forcing through a disorderly exit from the European Union on October 31.
USD/EUR Exchange Rate Sinks as Fed Interest Rate Cut Fears Haunt US Markets
The US Dollar (USD) fell against the Euro (EUR) today following yesterday’s mixed outlook for US inflation. Whilst August’s US core inflation improved at 2.4, headline CPI fell below forecasts and resulted in a slump in US bond yields.
Lucia Mutikani, an Analyst at Reuters, was downbeat in her assessment:
‘[T]he signs of an acceleration in inflation will likely do little to change market expectations that the Federal Reserve will cut interest rates again next month amid worsening trade tensions.’
As a result, US Dollar traders are remaining jittery ahead of the expected rate cut from the Federal Reserve next week.
Meanwhile, in today’s US economic news the ‘Greenback’ could likely remain subdued against the European currency later on this afternoon if US retail sales confirm consensus and ease in August.
However, these losses could be buffered this afternoon’s release of September’s US flash Michigan CPI, which is expected to improve from 89.8 to 90.9.
EUR/USD Outlook: Could the Euro Continue to Rise on Continuing US Economic Woes?
Looking ahead to next week, Euro traders will be awaiting Tuesday’s release of September’s German ZEW survey into economic sentiment. However, as these are expected to remain in negative territory around -38, it is unlikely to provide much uplift for the single currency.
However, the US Dollar, could improve on Tuesday following the release of August’s US industrial production figure, which is expected to rise from -0.2% to 0.2%.
However, with the Federal Reserve due to announce its interest rate decision on Wednesday, any further indications of the ongoing US-China trade war weakening the US economy could increase fears of dovish monetary policy going forward.
The EUR/USD exchange rate could likely hold onto its gains into next week if the US’ economic woes continue to dampen sentiment in the ‘Greenback’.