US Dollar to Euro (USD/EUR) Forecast to Fluctuate on US Data
The US Dollar was trending higher against both the Euro (USD/EUR) and the Pound (USD/GBP) on Wednesday, as it stabilised against other majors. The US Dollar has been in the limelight of late with the prospect of interest rate hikes growing ever closer. Some Federal Reserve Presidents have made statements recently claiming that they feel an increase in borrowing costs would be appropriate in the near future. These statements have caused ripples in contrast to Chairwoman Janet Yellen’s statements that they will remain low for a ‘considerable time’.
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Kansas City Fed President Esther George stated on Tuesday: ‘I think it is critical that we begin now to normalise those interest rates, to begin to allow the economy and the markets to allocate credit, to price risks the way they are intended to do.’
A wealth of US data in recent weeks has been supportive of rate hikes; however, Yellen has kept a firm stance that hikes were a while off. Yellen has stated that she wants investors to prepare themselves for sooner-than-expected interest rate increases by the Federal Reserve if the timeframe shortens due to the continuation of favourable data. Yellen commented: ‘It is important for markets to understand that there is uncertainty and that the statement is not some sort of firm promise about a particular amount of time.’
Wednesday saw US New Home Sales Jump to a six-year high in August, giving further support to the prospect of rate hikes. The data saw an 18% increase in housing sales which reached 504K, much higher than the forecast 430K and July’s 427K. Furthermore, the prospect of a continuation of sales increases could bolster the ‘Buck’ more. Economist Ryan Wang stated: ‘Sales could come in a little faster in the second half of the year. The housing market is stable.’
Meanwhile, the US Dollar was able to gain against the flailing Euro which has dropped against other majors as fears for the Eurozone recovery and the threat of deflation becomes more prominent. However, European Central Bank (ECB) President Mario Draghi has attempted to revive faith in the Eurozone economic recovery stating: ‘The governing council is unanimous in committing itself to using the tools at its disposal to bring inflation back to just under 2%.’ Inflationary levels have remained under 1% for the last 11 months, causing fears deflation is approaching.
However, German Business Climate and Expectations dropped below forecasts on Wednesday, showing that sentiment in the business sector was lacking. Friday will see the release of German Consumer Confidence figures which may help support the Euro if favourable.
US Dollar to Euro Forecast
The USD to EUR exchange rate may be affected by the highly significant US Durable Goods Orders alongside Initial Jobless Claims, Continuing Claims, and Composite and Services Purchasing Manager Indexes released on Thursday. Meanwhile, the Euro will experience fluctuation from Draghi speaking at the European Central Bankers Conference.
Yesterday’s impressive US New Home Sales figures and Germany’s poor Business Confidence figures ensured that the US Dollar to Euro exchange rate was able to advance.
The USD/EUR pairing was trending higher by almost 0.4% ahead of the release of several high profile US reports.
We forecast that the US Dollar to Euro exchange rate could brush weekly highs if the Markit Services and Composite PMI’s for the US impress.