Euro US Dollar Exchange Rate Dips on Dovish ECB Monetary Policy Statement

UPDATE: The Euro US Dollar exchange rate dipped today following a dovish European Central Bank (ECB) monetary policy statement, with the bank leaving its interest rate at a record low of 0% and reiterating its target of 2% inflation. The pairing is fluctuating around $1.17 at the time of writing.

The dovish statement from the ECB has weighed on market demand for the single currency, but some EUR investors remain confident about the outlook for the Eurozone’s economy, with vaccination efforts continuing to unfold across the European continent.

Demand for the safe-haven ‘Greenback’ has also increased, with global markets worried that the spread of the Delta variant of the coronavirus could weaken economic recovery in the months ahead.

EUR/USD Exchange Rate Steady, But Could a Dovish ECB Drag Down the Single Currency?

The Euro US Dollar exchange rate held steady this morning ahead of the European Central Bank’s (ECB) interest rate decision and monetary policy update. Could a dovish outlook for the Eurozone economy drag down the single currency? The pairing is trading around $1.17 at the time of writing.

Today will see the ECB more than likely hold its interest rate at 0%, but the bank is expected to show the impact of its latest strategy review.

Any downbeat comments about the strength of the Eurozone’s economy, however, would see the EUR/USD exchange rate begin to fall.

Valeria Bednarik, an economist at FXStreet, explains:

‘President Christine Lagarde has also noted that they would make some changes to their forward guidance to include the latest changes. Additionally, the coronavirus Delta variant poses a risk to the economic comeback, and policymakers won’t refrain from mentioning it. Overall, market players anticipate a dovish tilt, but most of it has already been priced in. A hawkish stance, on the other hand, will be quite a surprise that will catch investors off guard.’

Also coming up later this afternoon is the flash Eurozone consumer confidence data for July.

If this shows an improvement in consumer morale this month, then we would see the single currency head higher against the ‘Greenback’.

US Dollar (USD) Exchange Rate Steady Ahead of US Jobs Data

The US Dollar (USD) held steady against EUR today after the longer-dated government bond yields moved higher as the financial market mood improved. Bond yields were, however, below last Friday’s levels.

Edward Moya, senior market analyst at OANDA, commented:

‘I think right now you’re seeing that the global growth concerns might have exaggerated the collapse we saw in Treasury yields, and that short-covering type of move for the bond market was something that now you’re going to see the market reset.’

Coming up in US economic data today, the latest initial jobless claims for the July 16 will give some indication of the health of the jobs sector.

If US employment and hiring shows signs of improvement, then the ‘Greenback’ would head higher against the Euro.

Today will also see the release of the latest US existing home sales change for June. An uptick in house sales would indicate a recovering American economy and would prove USD-positive.

Risk sentiment will remain in focus today for the USD/EUR exchange rate. If risk sentiment improves, then demand for the safe-haven ‘Greenback’ would fall, dragging down the pairing.

EUR/USD Exchange Rate Forecast: US and Eurozone PMI Data in Focus

Euro traders will eye tomorrow’s release of the flash Eurozone composite PMI data for July.

Any improvement in either the bloc’s services or manufacturing sector would buoy optimism in the economic recovery and drive-up the single currency.

US Dollar investors will also be looking ahead to tomorrow’s release of the flash US PMI composite figure.

If the US economy shows signs of a robust recovery this month, then the USD/EUR exchange rate would head higher.

Risk sentiment will continue to influence the US Dollar this week. Growing confidence in vaccination efforts and containment of the Delta variant of the coronavirus worldwide would drag down demand for the safe-haven currency.

David Moore

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