Euro to Dollar Exchange Rate (EUR/USD) Supported by ECB Rate Hike Bets
On Thursday, the Euro to US Dollar exchange rate increased steadily. The EUR/USD was supported by persistent expectations on more rate increases from the European Central Bank (ECB).
However, the return of risk appetite and lower-than-expected German inflation rates put pressure on the currency rate. Markets saw signs of a tight labor market as justification for the Federal Reserve to raise interest rates again.
The EUR/USD exchange rate was about $1.0769 at the time of writing, up 0.5% from the morning’s opening values.
Despite a drop in German inflation, the euro (EUR) rises.
Inflation in January increased less than anticipated, suggesting that inflationary pressures had subsided.
However, analysts anticipate that core inflation in the biggest member of the trade bloc would stay persistently high. These expectations led to wagers on more interest rate increases from the ECB, which strengthened the Euro.
In his appraisal of the central bank’s course after the data, Carsten Brzeski, global head of macro at ING, provided the following information: Focusing on core inflation and core inflation estimates is the ECB’s stated goal.
a decline in the US dollar (USD) as increased risk appetite
Positive market sentiment and a decline in US government bond rates both pushed the safe-haven “Greenback” down.
John Williams, the president of the New York Fed, said in a speech on Wednesday that the central bank was likely to take “modest moves” at its forthcoming meetings.
However, some hawkish signs supported the USD. Christopher Waller, the governor of the Federal Reserve, also spoke on Wednesday. He said: “It could be a lengthy war, with interest rates higher for longer than some are presently expecting.”
The most recent unemployment claims data, released on Thursday, also contributed to containing the US dollar’s losses and fueled speculation about potential future Fed rate rises. For the week ending February 4, unemployment claims stayed close to historic lows, indicating a tight labor market in the US.
Forecast for the EUR/USD Exchange Rate: Will ECB/Fed Policy Divergence Strengthen Pairing?
Looking ahead to the rest of the week, ECB policymaker Isabel Schnabel’s speech on Friday may boost the value of the Euro. In prior lectures, Schnabel has argued for the central bank to continue raising interest rates.
The Euro may receive more support for the remainder of the week from ECB rate increase bets. Markets are still pricing in more rate increases of 50 basis points from the central bank.
The most recent consumer mood data, released on Friday, may support the US dollar if they come in as expected. The Michigan Consumer Sentiment Index is anticipated to reach a high of 65 in February, surpassing April 2022 as its previous peak.
A speech by Fed board member Patrick Harker on Friday may increase the pressure on the US dollar. The dollar may fall if he shows support for a pause in policy tightening.
Furthermore, any significant changes in risk appetite might cause volatility in the currency pair.