Euro US Dollar Exchange Rate Falls

The Euro US Dollar (EUR/USD) exchange rate plummeted on Thursday, following the publication of the US GDP data.

The data prompted EUR/USD to fall to around US$0.9999 at the time of writing, which was a decline of around 1% from Thursday’s opening rates.

US Dollar (USD) Exchange Rates Soar as Economy Rebounds

Thursday saw the US Dollar (USD) break free from its previous downward momentum, as the Q3 GDP data release provided a strong tailwind for the ‘Greenback’.

Q3’s GDP growth came in at 2.6%, above the market expectation of 2.4%. While only sluggish growth, it comes on the back of two consecutive quarters of economic contraction, with the US economy declining 1.6% in Q1 and 0.6% in Q2.

Despite the data providing a boost to the ‘Greenback’ and demonstrating a more stable economy in the face of global uncertainty, the wider outlook for the economy remained downbeat.

Dean Baker, a senior economist at CEPR, expanded upon this sentiment. He stated: ‘In principle, this is the sort of GDP report we should be happy to see at this point in a recovery. However, with the Fed continuing to hike rates, and most of the impact of past rate hikes yet to be felt, this could be the last good report we see for a while.’

Ultimately, the GDP data was welcomed by USD investors, as it bolstered the ‘Greenback’s safe-haven reputation, and drew strong support across Thursday’s session.

Euro (EUR) Exchange Rates Falter amid Hawkish ECB Rate Hike

The Euro (EUR) weakened on Thursday, after the European Central Bank’s (ECB) introduction of a 75bps interest rate hike.

This means that the ECB is now on track to perform one of the most aggressive cycles of rate hiking yet seen, with the central bank having raised interest rates 200bps over the course of three months. Last time this escalation was seen, it took ECB 18 months to reach that total.

While the hike was already priced in by markets, the extreme nature of the cycle has given investors pause as it comes against an increasingly bleak economic outlook for the Eurozone.

Jeremy Batstone Carr, the European Strategist for Raymond James, expanded upon this. He stated: ‘In response the ECB has raised its base interest rate by a further 0.75 points as it prioritizes its core mandate of ensuring price stability. However, the attempt to cushion the blow to households and businesses from rising costs is likely to create issues elsewhere by imparting a marked downward pressure on economic activity by dramatically increasing the cost of borrowing.’

This comes as ECB President Christine Lagarde outlined the central bank’s reasoning for the rate hikes in a speech. President Lagarde stated that further rate hikes were in the pipeline, and that there was more ground to cover.

European inflation rates are far beyond the desired level for the ECB, but the economic pressure being exerted by the aggressive rate hikes has weighed heavily upon the Euro.

Euro US Dollar Exchange Rate Forecast: US Data in Focus

Looking ahead, the core catalyst of movement on the EUR/USD exchange rate is likely to be Friday’s release of the YoY core PCE price index for the US. As the Federal Reserve’s preferred gauge of inflation, the expected increase may prompt further hawkish action from the Fed ahead of November’s incoming rate hike.

Should the index print as expected, it may prompt further remarks from Fed policymakers, which could buoy the ‘Greenback’.

For the Euro, Friday sees a raft of economic data released from across the bloc. With inflation rates expected to show an increase in Germany, Italy and France, the results may dent the Euro.