The euro fell in the European market on Wednesday against a basket of global currencies, deepening its losses for the third consecutive day against the US dollar and hitting a two-month low, amid negative pressures, particularly those related to interest rate differentials between Europe and the United States.
In order to reassess the existing probabilities surrounding European interest rates, investors are awaiting, at various times today, the release of important data on key sectors in Europe for September, which will provide strong clues about the pace of economic growth during the third quarter of this year.
Price overview
Euro exchange rate today: The euro fell against the dollar by about 0.2% to ($1.1425), its lowest level since July 29, from today's opening price of ($1.1446), and recorded a high of ($1.1450).
The euro ended Tuesday's trading down 0.15% against the dollar, its second consecutive daily loss.
US dollar
The dollar index rose 0.2% on Wednesday, extending its gains for the third consecutive session and hitting a two-week high of 100.73, reflecting the continued rise of the US currency against a basket of major and minor currencies.
This rise is due to dollar purchases as the best available investment in the foreign exchange market, especially in light of the Federal Reserve’s hawkish stance, which supports an additional increase in US interest rates this year.
Alberto Musallam, president of the Federal Reserve Bank of St. Louis, and Austan Goolsbee, president of the Federal Reserve Bank of Chicago, both pointed to the need for further interest rate hikes to curb inflation caused by strong demand and rising energy prices.
According to the CME Group's FedWatch tool: the probability of the Federal Reserve keeping interest rates unchanged at its October meeting is currently priced at 45%, and the probability of a 25-basis-point rate hike is priced at 55%.
European interest rate
Sources at the European Central Bank: Further tightening of monetary policy is likely, and another interest rate hike could be discussed as early as October.
The money market's pricing of the likelihood of the European Central Bank raising European interest rates by about 25 basis points next October is currently stable at around 50%.
Interest rate differentials
After the Federal Reserve raised US interest rates by about 25 basis points to a 4% range last week, the interest rate differential between Europe and the United States widened to 135 basis points in favor of the US interest rate, which enhances investment opportunities in the US dollar against the euro.
Key sectors
In order to reassess the existing probabilities regarding European interest rates, investors are eagerly awaiting the release of key sector data for the European economy during September, which will provide strong clues about the pace of European economic growth during the third quarter of this year.
Euro performance forecast
Here at FX News Today, we predict that if the data from key sectors in Europe comes in less aggressive than expected by the markets, the likelihood of a European interest rate hike in October will decrease, adding further downward pressure on the euro's exchange rate against a basket of global currencies.
