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US Dollar Drops Against Euro Despite Steady Interest Rates Outlook

May 31, 2017 at 14:26 by Yahia Barakah

The US Dollar dropped against the euro and other major currencies on Wednesday even as traders remained optimistic about an interest rate hike from the Federal Reserve in June. The Federal Open Market Committee will begin a meeting that will last two days on June 13 to review the US economic conditions and possibly raise interest rates.

A slew of economic reports yesterday painted a lackluster picture of the health of the economy. Despite a small gain in the core personal consumption expenditure price index in April on a monthly basis, consumer spending growth was unremarkable, according to the Bureau of Economic Analysis.

Furthermore, the Conference Board said that consumer confidence lagged behind in May as consumers felt less certain about the near future outlook. However, confidence in current conditions held steady.

A fresh reading for an index that tracks manufacturing activity in the Chicago region further weighed on the greenback today. Chicago purchasing managers’ index declined to 55.2 in May from 58.3 in April, which disappointed expectations of a reading at 57.0, according to ISM Chicago, Inc.

Meanwhile, the National Association of Realtors released a report that revealed a decline in pending home sales in April. Despite estimates of a 0.5% gain, pending home sales decreased 1.3% last month following a decrease of 0.9% in the previous month.

Traders are becoming concerned that recent negative economic data may reduce the Federal Reserve’s case for an interest rate hike in June. The CME Group FedWatch tool, which tracks the prices of federal funds futures to calculate probabilities of interest rate moves, showed an 84.7% chance of a 0.25% interest rate hike next month.

EUR/USD traded at 1.1234 as of 14:15 GMT on Wednesday from 1.1239 at 14:00 GMT, the pair’s highest level since May 25. EUR/USD began trading today at 1.1172.

The Dollar Index, which tracks the performance of the US currency against a basket of its major peers, declined to 97.00 as of 14:08 GMT today from 97.28 yesterday.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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