Euro US Dollar (EUR/USD) Exchange Rate Advances as Risk-On Tone Returns amid Hawkish ECB Comments
The Euro US Dollar exchange rate (EUR/USD) is firming today as risk appetite returns to the market.
At the time of writing, EUR/USD is trading at US$0.9756, a rise of 0.3% over the morning’s opening rates.
US Dollar (USD) Falters amid Risk-On Market Mood
The US Dollar (USD) is weakening today as a risk-on mood prevails. Sapping demand for the safe-haven currency.
The risk-on mood has been underpinned by the new UK Chancellor, Jeremy Hunt. Chancellor Hunt outlined plans to scrap several controversial tax cuts from the UK’s mini-budget. This helped avoid an economic crash in the UK, which would affect the European economy.
Further supporting the risk-on attitude was Xi Jinping’s third term appointment in China, demonstrating stability in one of the world’s economic giants.
As such, the ‘Greenback’ is a less attractive prospect against other, risk-sensitive currencies.
Adding to the pressure on the US Dollar is the fall in US Treasury yields, as the global markets continue to recover.
Ultimately, investors are striking a bullish tone and exploring the prospect of greater returns with riskier currencies. This has prompted USD to decline against most peers.
Euro (EUR) Mixed as ECB Strikes Hawkish Tone
The Euro (EUR) is seeing mixed trade against most peers this morning, in response to members of the European Central Bank (ECB) making comments in favour of higher rate hikes.
However, a technical recession is expected in the Eurozone. The Vice President of the European Central Bank Luis de Guindos has gone on record to say he doesn’t expect it to be intense.
This comes in conjunction with the release of Italian inflation data, which was hotter-than-expected. Italy is the 3rd largest economy in the EU and is following the precedent set by Germany. As such, investors are hedging their bets on rate hikes from the ECB.
ECB Policymaker Bostjan Vasle supported this approach, stating:
‘Given both headline and core inflation dynamics, I think we will continue with interest rates increases at our next two meetings. I think that our most recent pace for hikes is also appropriate at our next two meetings.’
This comes as the Ukraine-Russia conflict continues to develop, with Russia attacking Kyiv with drone strikes, muting further gains in the wider market for EUR.
Euro US Dollar (EUR/USD) Exchange Rate Forecast: Ukraine-Russia Conflict in Focus
Looking ahead for the Euro US Dollar exchange rate, the main catalyst of movement may be continuing developments in the Ukraine-Russia conflict.
As the conflict continues to deepen and unfurl, it places significant pressure on the wider Eurozone economy and energy supplies and may serve to dent the Euro even in risk-on markets.
Thursday sees the release of the latest initial jobless claims for the US. This may buoy the ‘Greenback’, with a ‘bad news is good news’ philosophy bolstering the expectation of Federal Reserve rate hikes.