Euro Dollar Exchange Rate (EUR/USD) and EZ Interest Rates Pressured Lower by ECB Member Coeure
- Written by: Gary Howes
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The euro exchange rate (EUR) complex is under pressure today on the spectre of negative interest rates in the Eurozone.
The euro to pound sterling exchange rate has taken a thorough beating on Wednesday as markets price in interest rate hikes early in 2015.
However, the complete opposite is currently being witnessed in the Eurozone where the possibility of negative interest rates is being bandied about.
A look at the euro exchange rate complex tells a story:
- The euro dollar exchange rate is trading 0.37 pct lower at 1.3588.
- The euro pound exchange rate is trading 1.16 pct lower at 0.8194.
- The euro Australian dollar exchange rate is trading 0.33 pct lower at 1.5043.
BE AWARE: All EUR quotes are taken from the wholesale inter-bank markets. Your bank will affix a spread to the rate at their discretion when passing on a retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.
Why is the euro being sold?
The ECB’s Coeure commented that the ECB was considering a negative depo rate “very seriously”, driving the EUR lower as North American trade gets underway and extending the intraday drop from the mid 1.36 area.
The follow-up remark “but you should not expect too much of it” was ignored by market participants.
"But, if the ECB doesn't think it will do much good, you might wonder why they’d do it in the first place. EUR/USD losses may start to slow in the 1.3575/80 area. The broader trend in EUR/USD remains very choppy and we retain a “low conviction” attitude to short-term trends here for the moment," says Shaun Osborne at TD Securities.
Weaker than expected industrial production also contributed to the move lower by the major euro exchange rate pairs, but a soft number was discounted because of deterioration in Germany, France and Italy.
"Instead, the primary reason why euro is falling is because the negative spread between German and U.S. yields has been widening since the Federal Reserve decided to taper for the second month in a row," says Kathy Lien at BK Asset Management.
The rise in 10 year U.S. Treasury yields affects other currency pairs as well but the difference is that yields in Australia and the U.K. for example are also rising rapidly because of their own shifts in monetary policies.
"With Friday's fourth quarter Eurozone GDP report expected to show slow growth at the end of last year, euro could be poised for further losses against the U.S. dollar," says Lien.
Yellen sparks risk rally
Elsewhere, markets saw a risk rally kicked off by U.S. Federal Reserve Chairwoman Yellen’s first congressional testimony, during which she reiterated the current course of policy and gave investors very little to worry about.
Continuity of policy was all the market needed to send U.S. shares rallying over 1 percent yesterday, with gold and oil following as the USD pulled backed, and we even got a bit of follow-through overnight as the Nikkei rallied in Japan.
The European session has been far more subdued, as enthusiasm wanes and the European Central Bank (ECB) comes back into focus following comments this morning regarding negative deposit rates that sent the euro 0.5 percent lower in early trade.
