The Euro US Dollar exchange rate tumbled to 1.1134, its worst levels since May, on Thursday as investors reacted to this week’s Federal Reserve news. The EUR USD outlook remains strong however and the pair begun to edge up from these lows during Friday’s European session.
Euro (EUR) Buoyed as Greece Settles New Bailout Deal
After being sold from its highs in profit taking and due to underwhelming domestic data for most of the week, the Euro edged up from its lows on Friday as investors reacted to the latest news from Greece.
The embattled Eurozone nation finally managed to settle an agreement between its creditors on Thursday night and earned €8.5bn in bailout funds, following months of disagreement.
The European Union and the International Monetary Fund (IMF) had not seen eye-to-eye in how to handle Greece’s debt crisis, which has been a persistent issue in the Eurozone for almost a decade.
For now, the IMF will only loan to Greece once the Eurozone clarifies how debt will be made sustainable in the long-term. The EU will initially give Greece around €7.4b worth of loans in July to help Greece pay off a handful of debt repayments. The rest of the funding will come through when creditors are confident that Greece will be compliant.
While the deal didn’t forgive any debt like Greek Prime Minister Alexis Tsipras was hoping, Greek officials were overall pleased with the new deal and hoped the path to economic recovery would now continue.
If Greece continues to recover, the Euro outlook will solidify further as Greece is one of the biggest uncertainties in Euro trade. However, critics have pointed out that these debt relief deals haven’t been sustainable in the long-term so the Euro’s outlook hasn’t notably improved this week.
US Dollar (USD) Rally Ends as Fed Bullishness Softens
The US Dollar easily pushed down the Euro on Wednesday night and Thursday morning as the latest Federal Reserve meeting eased market concerns that the Fed would take a more dovish tone this month.
The Fed hiked US interest rates on Wednesday as was widely expected. Following this week’s unexpectedly slow US inflation report the Fed also downgraded its 2017 inflation outlook. It left its 2018 and 2019 inflation forecasts alone.
Investors had been worried that this drop in inflation would have a negative impact on the Federal Reserve’s plan to hike US interest rates three times throughout 2017. Despite this, the Fed indicated that it still planned a third interest rate hike before the end of the year.
The US Dollar’s Fed-related gains were relatively limited however. This is because analysts and investors are still uncertain about the likelihood of a third 2017 rate hike, with bets still below 50%.
Thursday’s US data also failed to offer any notable support to the US Dollar which made it easier for EUR USD to edge higher on Friday.
US industrial production came in worse than expected month-on-month, at a stagnant 0%. Manufacturing production slipped from 1.1% to 0.4%.
Long-term USD trade will largely depend on upcoming job stats and inflation stats which may influence the chances of a third Federal Reserve interest rate hike this year.
EUR USD Interbank Rate
At the time of writing this article, the Euro US Dollar exchange rate trended in the region of 1.1170. The US Dollar to Euro exchange rate traded at around 0.8950.
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