The euro dollar exchange rate (EURUSD) is under significant pressure as the yields delivered by government bonds in the US and European head in opposite directions.
European bond yields nosedived as investors anticipated on the start of sovereign quantitative easing (QE) at the European Central Bank (ECB) next week.
Starting next week, the central bank is expected to buy over €40B government bonds/month.
At the same time, the dollar got, albeit limited, interest rate support as US inflation data came in stronger-than-expected.
The combination of both pushed the EUR/USD off a cliff.
At the time of writing on Friday the exchange rate is seen at 1.1219 - this is unchanged on the previous day's close but a massive 1.25% lower on a day-by-day comparison.
“EUR/USD dropped below first support at 1.1262. Next intermediate support at 1.1224 is on the radar,” says Piet Lammens at KBC Markets in a note to clients.
A news heavy morning out of the US has seen mixed data released but overall upward momentum from USD.
CPI, Unemployment claims and Core Durable Goods Orders were all reported as misses of 0.1%, 25K and 0.3% respectively. While Core CPI beat its 0.1% expectation coming out at 0.2% and Durable Goods Orders came out at 2.8% vs. the forecast 1.7%.
"Positive core CPI numbers, paired with Bullard’s “patience” removal statement, increase the anticipation of a Fed rate hike sooner rather than later," says a note from Olympia Trust FX in Canada.
USD has shown some good strength on this bullish sentiment and looks to push further upwards on the back of this statement and data.
Euro to Pound Exchange Rate Forced Lower
The euro exchange rate complex was under pressure right across the board.
Joining the decline lower was the euro-pound rate.
UK Q4 GDP details were slightly disappointing. The headline figure was confirmed at 0.5% Q/Q and 2.7 Y/Y.
Private consumption and investment were weaker than expected, but this was compensated by better than expected exports.
“EUR/GBP spiked a few ticks higher tot the 0.7325 area after the publication of the release, but EUR/GBP soon re‐joined the downtrend in the euro. The pair dropped to the
0.73 area first,” says Lammens.
A new downleg kicked in as EUR/USD declined further in the USD trading session.