The dollar rate is looking to maintain a rebound following sharp falls witnessed yesterday. However, the outlook continues to favour the euro.
A look at the forex markets at 14:00 on Wednesday the 23rd show the the euro dollar exchange rate is trading 0.13 pct lower at 0.6674.
The euro to pound exchange rate is meanwhile 0.35 pct higher at 0.8519.
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The euro is retracing yesterday's advance
Today's rebound in the dollar rate appears to be the dominant theme on currency markets.
"As with the rest of the FX space, EURUSD has retraced yesterday’s moves overnight, although overall the EUR has held up better against the USD than most other currencies. Without much on the calendar today, consolidation is likely the name of the game ahead of German/EZ PMIs tomorrow," says Shaun Osborne at TD Securities.
Meanwhile, initial results of the ECB bank stress test results were out overnight, but the only real take away is that they may take much longer than expected—up to another year.
Jyske Bank forecasting further gains for the euro dollar exchange rate
As the probability that the Fed will postpone its scaling down of QE increases, forex analysts at Jyske Bank have advised they will also postpone expectations of the coming USD strengthening.
"After yesterday's weak report, there is a high probability that EURUSD will continue up towards 139-140 over the period until the end of the year," says Leander Dreyer at Jyske Bank.
Dreyer has on several occasions emphasised that his expectations of a strengthening of USD depends very much on a self-sustaining recovery in the US in combination with the Fed's launch of scaling down of its most favourable monthly QE.
According to the analyst the reasons why the scaling down will result in a strengthening of USD are:
- yields in the US will begin to increase relative to the euro zone
- willingness to invest/investment flow will benefit the US
- due to the scaling down, less USD will be in circulation. The ECB will continue to pursue a MOST relaxed monetary policy for quite some time.