EUR to USD: This Growing Trend Could Crush the Euro to Dollar Exchange Rate

Bad News for Euro to U.S. Dollar Exchange Rate

After Mario Draghi, president of the European Central Bank (ECB), ruled out further increases in interest rates, the EUR/USD pair lost some of the ground it gained last Friday. The euro to U.S. dollar exchange rate has now settled around 1.1114. And the ECB and its American equivalent, the Federal Reserve, have shown the markets in which direction they intend to shift their currencies.

For several years, the Fed, in an effort to boost liquidity, pushed interest rates toward zero. In that sense, both the ECB and the Fed have been trying to stave off recessions. The measures have largely worked. Unemployment rates have fallen, generally, and stock exchanges have moved upward. Therefore, the ECB and Fed have moved in predictable patterns.

This is going to continue. On Wednesday, the Fed will take some of the limelight away from the ECB after a two-day policy meeting. While Fed Chair Janet Yellen did promise more than one rate hike last December, the institution will continue to stay on the sidelines; it will not raise rates. Although the U.S. economycontinues to expand, growth has been softer in 2016 compared to the pace of growth in the second half of 2015.

Indeed, while the Fed was printing U.S. dollars like there was no tomorrow in 2014, it slowed the pace of printing in the last weeks of 2015. Yet it did so in such a way as to avoid disrupting the markets, limiting the increase by a meager 0.25%. The result is that the euro could soon reach parity with the dollar. However, the speed at which this may happen has not matched expectations.

Indeed, the ECB’s latest round of incentives, or stimulus measures, has not translated into a sufficient drop in value for the euro to prompt parity yet. Despite the euro’s fall against the dollar in the second week of March, the euro was still trading around the $1.10 threshold. Nevertheless, should Fed Chair Yellen hint at a possible rate hike later in the year—as she suggested last December—the euro to U.S. dollar exchange rate could start to move higher.

Read Full Article On ProfitConfidential