Euro US Dollar (EUR/USD) Exchange Rate Gains despite Russia Gas Warnings
(Updated 16:35 19/07/22)
The Euro US Dollar (EUR/USD) trimmed some of its gains today. The exchange rate continued to be underpinned by the possibility of a 0.5% rate hike from the European Central Bank.
The exchange rate likely saw a slight dip amid renewed warnings of an imminent energy supply crisis across Europe. Researchers from the International Monetary Fund (IMF) warned that a Russian gas embargo could prompt deep recessions in Hungary, Slovakia, the Szech Republic, and Italy.
Reports from Reuters indicate that the Russia is set to restart the Nord Stream 1 piepline however. This may have helped to limit any major losses for EUR/USD
At time of writing the EUR/USD exchange rate is at around $1.0239, which is up around 0.9% from this morning’s opening figures.
Original article continues below:
Euro US Dollar (EUR/USD) Exchange Rate Hits Close to Two-Week Highs amid ECB Bets
The Euro US Dollar (EUR/USD) exchange rate is trading close to two-week highs today. The currency pair is likely being supported by hawkish bets on the European Central Bank (ECB). Conversely the US Dollar (USD) is seeing reduced bets as investors pare back their expectations of aggressive action from the Federal Reserve. This, as well as a corrective pullback in USD, may also be helping EUR/USD to climb higher.
At time of writing the EUR/USD exchange rate is at around $1.0259, which is up around 1.1% from this morning’s opening figures.
Euro (EUR) Leaps amid Rumours of 0.5% ECB Rate Hike
The Euro (EUR) is seeing a boost against many of its competitors today despite a risk-on impulse. An rise to Eurozone bond yields may be pushing EUR higher. Additionally, reports that the ECB may be considering a 0.5% interest rate hike this week is likely providing support to the single currency today.
Two sources speaking to Reuters have claimed that ECB policymakers will discuss the possibility of an above-forecast 0.5% interest rate hike this week. The anonymous sources claimed that the discussion between a 0.25% or 0.5% hike was ‘wide open’.
A spokesperson from the central bank declined to comment. A more hawkish rate hike would be outside of market expectations for the ECB.
Gains for the Euro could be capped by ongoing fears of an energy supply crisis and possible recession, however. Speaking today, European Commission member Johannes Hahn stated that he didn’t expect Russia to restart gas supplies through the Nord Stream 1 pipeline later this week.
US Dollar (USD) Slumps as Investors Pare Back Rate Hike Bets
The US Dollar (USD) is tumbling against its rivals today. The safe-haven ‘Greenback’ may be struggling amid a risk-on impulse in the markets. Additionally, a corrective pullback from two-decade highs may also be pushing USD lower.
Reduced bets on a super-sized interest rate from the Fed may also be seeing the currency drop today. After some particularly hawkish signals last week, Fed policymakers are now attempting to reign in market expectations of a 1% interest rate hike.
Speaking on the Fed’s moves, chief investment officer at MBB Capital Partners Mark Spindel said:
‘Based on what I have heard, absent the most important voice at the table, there seems to be a rally around 75 basis points.’
EUR/USD Exchange Rate Forecast: Will ECB Go Ahead with Hawkish Hike?
Looking to the week ahead for the Euro, a drop to Eurozone consumer confidence on Wednesday could pull the single currency lower.
Investors will be most eagerly awaiting the ECB’s interest rate decision on Thursday. An above-forecast rate hike could see EUR climb sharply.
A press conference and speech by ECB President Christine Lagarde after the decision could also prompt movement in the Euro. The single currency could be pushed higher if investors pick up on any hawkish signals.
Finally for EUR on Friday, a drop to Eurozone private sector growth could limit any potential gains if figures print as forecast.
For the US Dollar, a speech from Fed policymaker Lael Brainard later today could prompt movement in USD. Investors will be looking for confirmation as to the aggressiveness of future rate hikes.
A forecast downturn to initial jobless claims on Thursday which help the US Dollar to gain amid a tight labour market.
Friday’s downturn to private sector growth could see the currency slip if PMI figures print as forecast, however.