EUR/USD Exchange Rate Edges Higher as Dovish Fed Drags Down ‘Greenback’
The Euro to US Dollar (EUR/USD) exchange rate rose by 0.6% today, with the pairing currently trading around $1.199.
The US Dollar (USD) remains under pressure following the aftermath of the dovish speech from Jerome Powell, the Chairman of the Federal Reserve.
Mr Powell said:
‘[F]ollowing periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time. In conducting monetary policy, we will remain highly focused on fostering as strong a labour market as possible for the benefit of all Americans. And we will steadfastly seek to achieve a 2 percent inflation rate over time.’
Royce Mendes, the senior economist at CIBC, said that the change means that the Fed will be ‘more willing to stimulate the economy even as the unemployment rate falls’. As a result, this lead to a sell-off of the ‘Greenback’ as the outlook for the American economy looks increasingly grim.
In US economic news, today will see the release of the latest Michigan Consumer Sentiment Index for August. Any signs or improvement could boost the struggling USD/GBP exchange rate.
Euro (EUR) Benefits from US Dollar Weakness Following Jackson Hole Fed Speech
The Euro (EUR) benefited from its negative-correlation with the US Dollar (USD) today. The weaker ‘Greenback’ boosting the single currency as investors flock from the American currency.
In economic news, today saw the release of September’s German GfK Consumer Confidence Survey, which dipped to a worse-than-expected -1.8. As a result, EUR investors have become concerned about the Eurozone’s powerhouse economy.
Rolf Bürkl, a consumer analyst at GfK, commented on the data:
‘An increase in the number of infections and the fear that coronavirus-related restrictions will be further tightened are creating uncertainty and consequently dampening the mood.’
Today also saw the release of the Eurozone’s business climate report for August, which fell to a lower-than-expected -1.33. However, this left the single currency unmoved as it benefited from its positive-correlation with the weakened US Dollar.
EUR/USD Outlook: Could Dovish Eurozone Economic Data Drag the Single Currency Down Next Week?
Euro (EUR) traders will be looking ahead to Monday’s release of August’s German harmonised index of consumer prices. Any improvement in the Eurozone’s largest economy would boost the single currency.
US Dollar (USD) investors will be awaiting Monday’s speech from the Federal Reserve’s Vice Chairman, Richard Clarida. If he reiterates Jerome Powell’s dovish forecasts for the American economy, then we could see the ‘Greenback’ tumble.
The EUR/USD exchange rate will remain sensitive to Eurozone economic data next week. Any further signs of the Eurozone struggling to recover from the coronavirus crisis would prove EUR-negative.