Draghi comments help Euro/US dollar through 0.89


This afternoon Euro exchange rates have fallen heavily against both the pound and US dollar following comments made by European Central Bank (ECB) Governor Mario Draghi.

At the central banks latest meeting the ECB hinted that interest rates in the eurozone will not rise until next year at the earliest amid evidence of a slowdown in the 19 countries using the single currency.

In his statement he said economic growth in the euro area was now expected to be 1.1% against the previous forecast of 1.7%. Inflation is expected to be 1.2% down from the earlier forecast of 1.6% – reducing pressure for any monetary policy stimulus.

Following these comments GBP/EUR pushed through 1.1670 but the big move was seen for USD/EUR which rallied to its highest level since July 2017 to push through 0.89/1.1230.

Will the USD/EUR rally continue?

The ECB’s concerns regarding a slowdown in growth follows a similar trend to that of the Federal Reserve. Both have taken a less hawkish tones in recent months with regards to interest rate movements but the lack of positive date from within the eurozone is likely to keep the Euro weak in the short term. But what about the longer term view?

The US economy hasn’t been setting the world alight and many now believe the Fed will keep rates on hold for the remainder of 2019. This combined with the on-going trade war with China and I believe the dollar could be set for a correction. We have seen a significant rally for the dollar in the last year. In April 208 rates were at 0.8060/1.24 some 11% lower than the current levels. I for one feel the dollar is overvalued and believe a move back toward 0.87/1.15 will be seen in the next few weeks.

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