Wednesday saw the Euro to US Dollar (EUR/USD) exchange rate trending lower in spite of disappointing US data, as markets continue to speculate on the odds of an imminent Fed rate hike.
Greek Worries Continue to Overshadow Euro Exchange Rate
It has not been a particularly positive start to the week for the Euro (EUR), with investors spooked by the fact that the latest round of Greek bailout negotiations had to be put on hold for the IMF spring meetings.
Although there have been comments from the involved parties that progress has been made the lack of firm deal remains a concern, particularly as sticking points such as pension reforms and debt relief remain unresolved.
The appeal of the single currency was dented further on Wednesday by the news that the Eurozone’s industrial production had fallen more sharply than anticipated in February, clocking in at 0.8% rather than 1.3%.
This did not offer particular encouragement to investors, as signs of continued slowing within the currency union do little to ease speculation that the European Central Bank (ECB) could be prompted to loosen monetary policy again in coming months.
Hawkish Fed Comments Shore up US Dollar Demand
Overnight the US Dollar (USD) experienced a strong surge in demand due to commentary from Richmond Fed President Jeffrey Lacker.
In contrast to more dovish sentiment displayed by other policymakers Lacker indicated a belief that the Fed should stick to its December projections of four interest rate hikes over the course of 2016.
Although Lacker is not currently a voting member of the Federal Open Market Committee (FOMC) this hawkish suggestion prompted markets to move back towards the US Dollar, encouraging fresh talk of an April rate hike.
This bullish mood persisted throughout trading on Wednesday, despite March’s Advance Retail Sales surprising on the downside.
US consumer demand shrank sharply on the month, with sales sliding from -0.1% to -0.3% as confidence in the domestic economy appeared to falter.
Nevertheless, towards the close of the European session the Euro to US Dollar (EUR/USD) exchange rate was slumped in the region of 1.1282.
US & Eurozone Inflation Data Forecast to Drive EUR/USD Movement
Inflation data will be the primary cause of Euro and US Dollar volatility on Thursday, with the finalised Eurozone and US Consumer Price Indexes due for release.
Traders are anticipating a slight upwards revision of the Eurozone figure from -0.2% to -0.1% on the year, although this improvement may have been derailed by Greece’s recent descent deeper into negative inflation territory.
The US is also expected to show growth in inflationary pressure to rise from 1.0% to 1.1%, a result which could increase calls for a more imminent interest rate hike from the Fed.