The EUR/USD exchange rate has begun to recover, trading around the mid-1.1600s after bouncing back from a recent pull back. European Central Bank (ECB) President Christine Lagarde announced that the bank’s forecasts anticipate inflation being close to the bank’s 2% target in coming months. This sanguine view comes as US economic growth has experienced a sudden recovery. Today’s activity in the currency pair is part of a larger move and would produce net weekly benefits for the second straight week.
While the USD/JPY currency pair continued to suffer losses, on Friday, the EUR/USD currency pair rebounded from its previous day’s low near the 1.1680 area. This recovery pushed it to its highest level since mid-October. The euro’s appreciation trend has resumed with a vengeance. Sentiment among traders has improved as they see the first signs of focused new buying coming to the market. Momentum from buyers strengthens this week’s breakout above the 100-day Simple Moving Average (SMA). This trend adds upward support to the bullish outlook for the currency pair.
The US Dollar is having a very hard time maintaining its strength. It recently recovered from a six-week low overnight, but the fight is far from over. Market participants are increasingly pricing in an approximately 85% probability that the Federal Reserve will lower borrowing costs in its upcoming meeting. This dovish mood around the Fed adds to weakness in the USD’s value against a basket of nine major currencies.
According to latest data from Marketwatch, the US Dollar is down 0.50% against the euro today. It declined 0.72% against the British pound and 0.81% against the Japanese yen. The currency has lost -0.57% to the Canadian dollar in this last week. It fell -1.30% vs the Australian dollar, -0.80% vs the New Zealand dollar and -0.23% vs the Swiss franc.
The recent Lagarde’s reaffirmation of the ECB’s inflation expectations has provided even more support to the euro. Inflation is the secret sauce that gooey central banker beneath the surface. Her comments suggest that the ECB stands prepared to fulfill its promise to restore economic stability to the Eurozone.
Traders are now closely monitoring economic indicators and central bank communications to gauge future movements in both the euro and the dollar. It’s the US Personal Consumption Expenditures (PCE) Price Index report that’s poised to juice the currency markets. It will provide essential real time data on inflation trends and US consumer spending.