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Euro US Dollar Exchange Rate Tight on ECB Dovishness and Trump-Jinping Meeting

Published: 6 Apr at 5 PM Tags: Euro Exchange Rate, Dollar Exchange Rate, Forex, Euro Crisis,

Euro traders have been thrown a curveball today, which has ultimately kept the Euro trading closely against the US Dollar.

Initially, it looked like a day of losses was due, with Eurozone retail activity contracting in February.

Additional negativity was heaped on by European Central Bank (ECB) President Mario Draghi and fellow official Peter Praet.

Both indicated that they thought low interest rates were likely for the foreseeable future. This sent the EUR USD rate down to a daily low.

Against expectations, however, Bundesbank President Jens Weidmann, who is also a top ECB official, stated;

‘Given the prospect of a protracted, robust economic recovery in the Euro area and an increase in price pressure, it is legitimate to ask when the ECB Council should consider monetary policy normalization’.

This optimism triggered a sharp Euro appreciation, bringing it back up against the US Dollar for the rest of the day.

The Euro could break free from its current stalemate against the Euro on Friday, when German trade balance stats come out. In February, a previous surplus of 14.8bn was recorded and a greater 17.7bn outcome is forecast, which could greatly boost the Euro.

The other major announcement will be Italian retail sales figures for February, which are predicted to drop from 1.4% to -0.1%. If this forecast proves accurate, any gains from a rising trade surplus may be erased.

US Dollar Unsettled by Fed Resignation, White House Reshuffle

With President Donald Trump poised to meet Chinese President Xi Jinping, the US Dollar has failed to notably advance against the Euro today.

Damaging developments have included a demotion and a resignation, with the first concerning White House advisor Steve Bannon. Bannon has been bumped down a peg in his White House duties, which was a largely unexpected move from the Trump administration.

Similarly surprising was the resignation of Fed Bank of Richmond President Jeffrey Lacker. Stepping down voluntarily after admitting to leaking Fed information, Lacker has left a conspicuous hole in the Fed leadership.
If this empty seat is filled by an official backed by Donald Trump, the US Dollar may depreciate due to greater implied instability and unprecedented policy change.

Positive US news today has seen larger-than-forecast reductions in jobless claims in late March and early April. Although seemingly supportive, the imminent meeting between Trump and Jinping has limited activity around the US Dollar.

Unlike other state visits, this meeting could be notably tense, given previous criticism by both leaders of the other’s policies.

If Trump manages to pull off a diplomatic miracle and make progress with the Chinese leader, then the US Dollar may appreciate strongly coming into Friday’s trading session.