Euro US Dollar (EUR/USD) Exchange Rate Holds Ground as US Inflation Falls
(Article updated 13:50, 14/3/2023) The Euro US Dollar (EUR/USD) exchange rate is remaining narrow this afternoon, following the publication of the US’ latest CPI data.
American inflation fell in line with forecasts in February, with headline CPI cooling to 6%. As such, Federal Reserve rate hike bets are likely remaining low, as the tightening cycle appears to be taking an effect on inflation.
However, the Euro is still contending with a lack of impactful data, leaving the common currency to trade on market sentiment. With risk-appetite on the up this afternoon, the safer currency is lacking much direction.
At the time of writing, EUR/USD is trading at around US$1.0704, showing little movement from the morning’s opening rates.
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Euro US Dollar (EUR/USD) Exchange Rate Rangebound as Rate Hike Bets Recede
The Euro US Dollar exchange rate is trading sideways this morning, as investors readjust their bets on further rate hikes from both central banks.
At the time of writing, EUR/USD is trading around US$1.0719, showing minimal movement from today’s opening rates.
Euro (EUR) Limited by Pared Back ECB Rate Hike Bets
The Euro (EUR) is struggling for support this morning, as EUR investors adjust their expectations of further tightening.
While markets are now eyeing a smaller rate hike on Thursday, the question remains on the European Central Bank’s (ECB) forward guidance.
Analysts at ING commented on this, stating:
‘Our economics team does not see a very material risk of a 25bp hike this week and only expects recent market developments to affect the debate about the path beyond March.’
Furthermore, the shift in risk appetite prompted by the collapse of Silicon Valley Bank (SVB) over the weekend is continuing to be felt. As such, the Euro is seeming less appealing to investors, due to it’s safer status.
US Dollar (USD) Capped by Falling Rate Hike Bets
The US Dollar (USD) is seeing quiet trade this morning, as investors continue to adjust their bets on the Federal Reserve’s tightening cycle.
Following the collapse of Silicon Valley Bank, investors have begun to question how much farther the Fed can take their rate hikes. SVB’s cratering reiterated the precarious nature of the hikes, and showed that further raises could have a severe impact.
As such, bets of a rate hike pause have increased to around 30%, potentially capping USD’s gains.
Elsewhere, the upcoming US CPI data is likely prompting quiet trade, as investors await the release. With both headline and core inflation forecast to have slowed in February, it may prompt further pared back bets.
If this data prints as forecast, the ‘Greenback’ could weaken later in today’s session. If US inflation drops, it may further inspire bullish trade, which would weigh on the safe-haven currency.
Euro US Dollar (EUR/USD) Exchange Rate Forecast: ECB Rate Hike in Focus
Looking ahead for the Euro, the core catalyst of movement is likely to come from Thursday’s interest rate decision from the European Central Bank.
Currently, a 50bps rate hike is priced in by markets, with the ECB remaining persistently hawkish in their communications. Because of this, any hawkish forward guidance is likely to benefit the common currency.
For the US Dollar, the primary driver of movement could be February’s retail sales data, due to print on Wednesday. The monthly data is forecast to show a decline in sales, dropping down from a 3% increase down to a decline of 0.3%. This could weigh heavily on the ‘Greenback’ due to the consumption based nature of the US economy.
Elsewhere, the continued fallout from the SVB’s collapse may continue to sway the pairing. Weith the Eurozone less affected by the bank’s collapse, it may continue to weaken USD.