The euro charged higher to a multi week high versus the US dollar on Wednesday, following the Federal Reserve monetary policy announcement. The euro US dollar exchange rate pushed through US$1.11, touching a high of US$1.1145 towards the end of the US session. The pair is edging higher in early trade on Thursday.
The euro’s advance on Wednesday was more of a dollar weakness story rather than owing to any notable fundamental euro strength. There was no eurozone economic data released on Wednesday and the euro moved at the will of the US dollar.
Today euro investors will look towards German inflation data and eurozone industrial production numbers prior to the European Central Bank’s monetary policy announcement. Recent eurozone economic data has shown tentative signs of improvement, raising optimism that the slowdown in the eurozone and particularly the German economy could be bottoming out. Inflation, however, is still a significant distance from the ECB’s 2% target. Given these circumstances the ECB is expected to leave monetary policy unchanged.
This will be Christine Lagarde’s first meeting at the helm of the central bank. So far Christine Lagarde has said very little about monetary policy. Whilst she is not expected to make substantial changes to the statement, investors will be listening to her style and language closely in the questions and answers session.
Later in the session, UK general election exit polls could also impact on the euro.
Dovish Fed Drags on Dollar
The dollar dropped following the Federal Reserve announcement and press conference. As expected, the Fed kept policy unchanged. However, a more dovish than expected Fed Chair Powell hit the mood for the greenback. Jeremy Powell reiterated that he would want to see inflation rising substantially before hiking interest rates. Additionally, the closely followed dot plot, which indicates the path of futures interest rates, showed that the Fed intends to keep interest rates on hold throughout the 2020 election year.
After the strong labour market data and inflation figures, investors were hoping for a more hawkish Powell. This didn’t materialise instead the central bank’s concerns over inflation and the health of the global economy weighed on demand for the greenback.
There is no high impacting US data due to be released today. Investors will continue digesting the Fed’s remarks ahead of retail data on Friday.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 EUR = 1.12829 USD
Here, €1 is equivalent to approximately $1.13. This specifically measures the euro’s worth against the dollar. If the U.S. dollar amount increases in this pairing, it’s positive for the euro.
Or, if you were looking at it the other way around:
1 USD = 0.88789 EUR
In this example, $1 is equivalent to approximately €0.89. This measures the U.S. dollar’s worth versus the euro. If the euro number gets larger, it’s good news for the dollar.