Despite aggressive European Central Bank stimulus measures, risks to the US dollar to euro exchange rate are still skewed to the downside.
The US dollar could remain weak in the coming months.
A survey of economists by the Wall Street Journal has found that just 3% of them are predicting a rate hike from the Federal Reserve in March, which could see USD under-performing against rivals such as the euro and the pound sterling.
On average, economists put the probability of a hike around 12%, while 76% of those polled anticipate the Fed will tighten policy in June.
Here are the latest live FX rates for your reference:
On Tuesday the Pound to British Pound exchange rate (GBP/GBP) converts at 1
Today finds the pound to pound spot exchange rate priced at 1.
At time of writing the pound to euro exchange rate is quoted at 1.165.
At time of writing the pound to swiss franc exchange rate is quoted at 1.138.
Please note: the FX rates above, updated 7th May 2024, will have a commission applied by your typical high street bank. Currency brokers specialise in these type of foreign currency transactions and can save you up to 5% on international payments compared to the banks.
In a move that caught markets by surprise, the European Central Bank (ECB) cut all of its rates and expanded quantitative easing by more than had been forecast.
Despite this, risks to the US dollar to euro exchange rate remain skewed to the downside thanks to global economic conditions presenting a difficult environment for the Federal Reserve to hike rates.
The US Dollar did find some relief from safe-haven demand as market volatility dampened risk-appetite, but expectations of Euro gains coincide with US Dollar losses.
Euro strength is predicted to weigh heavily on demand for the US Dollar, BNP Paribas forecast EUR/USD exchange rates to hit 1.16 in H1 2016.
Markets were thrown into sharp volatility yesterday after the ECB expanded asset purchases to €80 billion and cut the benchmark interest rate to zero. The accompanying ECB press conference caused a larger shake-up, however, after President Mario Draghi stated that he does not expect the central bank to cut rates again.
The US Dollar initially slumped significantly in response to Draghi’s comments, but the resultant market volatility caused heightened safe-haven demand which allowed the Dollar to recover some of its losses.
Following yesterday’s events, analysts at BNP Paribas predict that risks to the EUR/USD exchange rate are skewed to the upside, stating;
‘The bottom line is that, in our view, there is no stable equilibrium for global financial markets that includes the USD is resuming its broad trend higher. Periods of building Fed hiking expectations are likely to be overwhelmed by deterioration in the risk environment. The process of periodic recovery in the risk environment followed by subsequent deterioration is expected to keep FX volatility high, supporting currencies with current account surpluses like the EUR and JPY, at the expense of currencies with deficits including the USD and commodity-exporting foreign exchange. We continue to see scope for EURUSD to reach 1.16 in H1.’
EUR (EUR) Exchange Rates Cool from Highs Following Draghi Comments
The common currency continues to hold a position of strength versus its major peers on Friday morning thanks to Mario Draghi’s comments that the ECB will not look to cut rates again. This can be viewed as somewhat unfortunate given that the crucial point of expanding quantitative easing is to devalue a currency.
However, the single currency has cooled a little from the highs reached yesterday as traders take advantage of attractive selling opportunities. Profit-taking is only likely to have a short-term impact, however, with the Euro predicted to resume appreciation by many analysts, including BNPP.
It remains to be seen whether the new policy changes will have a positive impact on Eurozone inflationary growth.
Today’s German inflation data for February met with expectations of 0.0% on the year.
Pound Sterling (GBP) Exchange Rates Varied on Mixed Domestic Data Results
Given its close ties to both the Euro and the US Dollar, the British Pound also endured significant volatility in response to events yesterday.
On Friday morning, Pound Sterling exchange rates are varied after domestic data produced a mixed-bag of results.
January’s Total Trade Balance failed to see the deficit reduced as much as had been predicted. However, Visible Trade Balance and Trade Balance Non EU reports both bettered the respective median market forecasts.
Additionally, January’s Construction Output contracted less-than-anticipated on the year, but the monthly reading failed to grow in line with the market consensus.