Pure FX Blog

31 January 2018

Euro Nears 38-Month High Versus US Dollar, as Fed Set to Hold Rates

The euro to US dollar interbank exchange rate has neared its highest since November 19th 2014 today, at 1.2450, as the US Federal Reserve looks set to keep interest rates on hold. Image credit: Mokra.

The euro to US dollar interbank exchange rate has neared its highest since November 19th 2014 today, at 1.2450, as the US Federal Reserve looks set to keep interest rates on hold. Image credit: Mokra.

by Peter Lavelle

Welcome to Pure FX’s latest update of the euro to US dollar interbank exchange rate.

This tells you when it’s a favourable time to exchange euros to US dollars, for your money transfer!

The common currency jumps versus the greenback! The euro to US dollar interbank exchange rate has hit 1.2450 today, very close to its highest in 38 months, or since November 19th 2014.

The euro has climbed against the US dollar, because it’s thought that America’s central bank, the Federal Reserve, will hold interest rates steady, when the Fed announces its decision today.

The buck has weakened, because there’s just a +5.2% chance that the Fed will lift interest rates above their current 1.25%-1.5% today, according to CME Group’s FedWatch tool.

The Fed looks set to keep interest rates steady, first because today is Fed chairwoman Janet Yellen’s last meeting as Fed chair. So, Dr. Yellen will want to keep things steady, thus hurting the buck.

America’s central bank also looks likely to keep rates stable, as Personal Consumption Expenditures (PCE) rose just 1.7% in December, below the Fed’s 2.0% target. This is weighing on the dollar too.

What’s more, the greenback has also lost out, as financial markets already think that the Fed will hike borrowing costs 3 times this year. This limits the potential for the US dollar to rise further!

Euro strengthens, as Eurozone economy accelerates in 2017

Furthermore, the euro to US dollar interbank exchange rate has also neared this 38-month high, because the Eurozone economy accelerated in 2017, said official statistics yesterday.

The common currency has jumped, because Eurozone GDP increased by +2.5% last year, according to Eurostat on Tuesday, faster than the UK, USA, and Japan, and the most since 2007.

This has lifted the euro, first because this tells us the currency bloc has at last overcome its debt crisis, and grew faster than most other major industrialised economies last year.

This has also bolstered the euro, because 2017’s strong economic growth bodes well for this year too, with France and Spain in particular set to lift the Eurozone’s GDP growth higher in 2018.

Also, economic sentiment in the Eurozone held close to its highest in 17 years in January, said the European Commission yesterday, at 114.7. This has also strengthened the euro.

With all this in mind, the euro has neared this 38-month high versus the US dollar today, and could continue to climb!

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

References

1. Anonymous, “US dollar inches lower, barely reacts to Trump speech”, January 31st 2018, BusinessTimes.com.sg, http://www.businesstimes.com.sg/banking-finance/us-dollar-inches-lower-barely-reacts-to-trump-speech
2. Anonymous, “U.S. dollar falls as Fed meeting begins”, January 31st 2018, XinHauNet.com, http://www.xinhuanet.com/english/2018-01/31/c_136937157.htm
3. Anonymous, “U.S. consumer spending grows at slower pace in December”, January 30th 2018, XinHauNet.com, http://www.xinhuanet.com/english/2018-01/30/c_136934459.htm
4. Jan Strupczewski, “Euro zone growth at 10-year high in 2017, January sentiment dips”, January 30th 2018, Reuters.com, https://www.reuters.com/article/us-eurozone-economy/euro-zone-growth-at-10-year-high-in-2017-january-sentiment-dips-idUSKBN1FJ1A6?il=0
5. Stephanie Kelly, “Dollar reverses gains as Fed meeting starts, euro, yen strengthen”, January 30th 2018, Reuters.com, https://www.reuters.com/article/us-global-forex/dollar-reverses-gains-as-fed-meeting-starts-euro-yen-strengthen-idUSKBN1FJ06E

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