Euro to Benefit on Expected Fed Moves

After slumping recently, the Euro has made a remarkable recovery last week against its US counterpart on the back of strong data from the Eurozone and worries over the number of rate hikes to be delivered from the US Federal Reserve over the coming year.

Markit PMI numbers released on Thursday capped off a wonderful week for the Eurozone coming in at 57.5, well above analysts’ expectations with any number over 50 showing the sector in growth mode. The EUR/USD finished the week at 1.1932.

“We thought we had reached a peak a few months ago, so this is a surprise. This is a very broad-based looking upturn,” said Chris Williamson, a chief business economist at IHS Markit.

An even bigger boost for the Euro against the US dollar this week was the latest Minutes meeting from the US Federal Reserve, where many Fed board members raised concerns on the number of rate hikes that need to be delivered over the next 13 months.

The reason for the concern is persistently low inflation, which has sat under the Feds target rate for quite some time and makes it difficult to lift rates to high.

Although the market has priced in a 90 percent chance the Fed will lift rates next month, some say there will only be one more hike next year which is well down from the 3 predicted just a week ago.

The US dollar has greatly benefited against the Euro and other currencies on the back of expected rate hikes but now that the number has been revised down the greenback is likely to be sold off and the Euro is set to benefit.

This article was written by FIBO Group analyst Andrew Masters.