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Common Currency Baulks under Negative Economic Sentiment in EUR-USD Conversion Rate ahead of Crucial FOMC News

Published: 16 Sep at 9 AM Tags: Euro Exchange Rate, Dollar Exchange Rate, Currency Exchange, Euro Crisis, Exchange Rates, Economy, Inflation,

EUR-USD Exchange Rate Declined Steadily as Confusion Reigns over Effect of US Economic Releases

The Euro began this week on a high note, but has slipped downwards considerably following a spate of pessimistic predictions for the future of the Eurozone’s economy. Meanwhile, the US Dollar has fluctuated wildly as each piece of positive or negative data has had an immediate seesaw effect on speculation regarding the Federal Open Market Committee (FOMC) interest rate decision.

The Euro began on a positive note on Monday with the Eurozone monthly and yearly Industrial Production results coming in strongly positive, although surprisingly the single currency made little discernible gains in the wake of the announcement. The Euro reached its highest point of the week against the ‘Buck’ on Monday, hitting 1.1367 early in the morning. Since then, the common currency has steadily declined, mostly due to somewhat growing US optimism regarding the FOMC decision.

The Euro hasn’t been at all helped by yesterday’s ZEW surveys – while the German Survey of the Current Situation rose from 65.7 to 67.5, opinions regarding the future were far less optimistic. The German and Eurozone Surveys of Economic Sentiment for September both posted major declines, from 25 points to 12.1 and 47.6 to 33.3 respectively.

The Euro’s downtrend against the US Dollar yesterday is slightly irregular, especially as the US economic publications weren’t exactly ebullient. The Advance Retail Sales figure for August fell from a previous 0.7% to 0.2%, and the Industrial and Manufacturing Production figures for August both fell into negative figures. A possible explanation for this is that while this eleventh-hour set of results has been negative, a number of other high-profile US results released over the past few weeks have supported expectations of a rate hike.

Eurozone and US Inflation Rates will determine Final Standing Today in Calm before Tomorrow’s Storm

The Euro has the potential to bounce back against the US Dollar today, assuming that the Eurozone CPIs for August meet with or exceed forecasts. Repeated increases are expected over the base and core annual variants, while an improvement out of July’s -0.6% drop to 0% in August has also been predicted. On the US side of things, the US annual base CPI and CPI excluding Food and Energy are due for release; a familiar 0.2% increase is expected in the former while a 1.9% improvement is expected upon the previous posting of 1.8% for the latter field.

Looking further ahead, however, any major movement today is likely to be eclipsed by the FOMC interest rate decision tomorrow evening. Most significantly, forecasts have the rate being increased from 0.25% to 0.38% tomorrow, although the fact that this figure has been revised downwards from 0.44% this week is indicative of the continuing uncertainty that swirls around the Fed’s decision making process.