Euro US Dollar (EUR/USD) Exchange Rate Drops as EU Rate Hike Bets Fall
The Euro US Dollar (EUR/USD) exchange rate is weakening this morning, as European Central Bank (ECB) policymakers strike dovish tones.
At the time of writing, EUR/USD is trading at around US$1.0358, a fall of roughly 0.3% from the morning’s opening rates.
Euro (EUR) Narrows as Dovish Remarks from ECB Stifle Rate Hike Bets
The Euro (EUR) is trading narrowly this morning, following dovish comments from European Central Bank (ECB) policymakers.
Specifically, notable hawk Robert Holzmann indicated that strong tightening would lead to a recession rather than stagnation.
This was explained by analysts at ING. They stated:
‘ECB officials also appear to have dialed down their hawkishness. When arch-hawk Holzmann of the Austrian central bank is mindful that too strong tightening would not just lead to stagnation but to a recession, then markets should take note.’
As such, investors saw hopes for a further bumper rate hike from the ECB dashed, with the likelihood falling to 20%.
Further muting the single currency is the continuing Ukraine-Russia conflict. While tensions have fallen back somewhat after the missile which struck Poland was deemed an ‘unfortunate’ incident, investors remain cautious.
US Dollar (USD) Climbs as Fed Reiterates Plan to Curb Inflation
The US Dollar (USD) is gaining ground this morning, as Federal Reserve policymakers reiterate the Bank’s hawkish attitude.
San Francisco Federal Reserve President Mary Daly pointed to interest rates rising by at least another percentage point, possibly more. This comes as the consumption-based US economy enjoyed hotter-than-expected retail sales data, which leapt to 1.3% over a flat 0%.
The data indicates that a ‘hard landing’ for the US economy may not happen. As such, Fed Daly outlined the intention from the Federal Reserve to curb inflation.
She stated:
‘Pausing is off the table right now. It’s not even part of the discussion. Right now, the discussion is rightly around slowing the pace and focusing our attention really on what is the level of interest rates that will end up being sufficiently restrictive.’
Further supporting the safe-haven ‘Greenback’ this morning are tailwinds resulting from a risk-averse market mood.
Euro US Dollar (EUR/USD) Exchange Rate Forecast: Policymakers in Focus
Looking ahead for the Euro US Dollar (EUR/USD) exchange rate, specific data is thin on the ground.
However, speeches are scheduled from both Central Banks. For USD, Fed Governor Michelle Bowman could support USD further if she continues the Fed’s hawkish stance.
ECB President Christine Lagarde is scheduled to speak on Friday morning. If she continues along with the dovish tone set by other policymakers, EUR may slip.
Elsewhere, with geopolitical tensions at a high due to recent developments in the Ukraine-Russia conflict, any further changes could shift the pairing.