Latest Eurozone Data Disappoints Forecasts, Pushing EUR/USD Exchange Rate Lower
Poor Eurozone economic data has seen the EUR/USD exchange rate weaken this morning, with the US Dollar also boosted by signs that officials want to work with the Chinese government to avoid escalations in the ongoing trade dispute that threatens to engulf the two nations.
German factory orders started off today’s disappointing docket, showing month-on-month growth of just 0.3% compared to forecasts of an acceleration to 1.5% after a strong decline in January.
This meant that year-on-year growth slowed from 8.2% to 3.5%, instead of clocking in line with consensus expectations of 6.3% expansion on a non-seasonally adjusted basis.
A run of disappointing finalised services and composite PMIs for March followed shortly after, with the Italian, German and Eurozone-wide indices all being unexpectedly revised lower, although the French services and composite index enjoyed an upwards correction.
Retail sales figures also disappointed, with transactions growing just 0.1% month-on-month compared to expectations for 0.6% expansion, while year-on-year growth edged up from 1.5% to 1.8% instead of increasing to 2.3%.
Marginally better-than-expected producer price index figures have provided a modicum of support for the Euro, however, as the slightly above-forecast pace of growth could suggest building inflationary pressures within the currency bloc.
Signs Government Officials Working to Diffuse US-China Trade Tensions Undermines EUR/USD Exchange Rate
The US Dollar has received a boost today as markets react to comments from US and Chinese officials suggesting both parties are looking to find an alternate solution to the current trade dispute than levying tit-for-tat tariffs, further undermining the EUR/USD exchange rate.
Trade tensions have climbed sharply in the past few days after a series of back-and-forth policy adjustments have resulted in numerous tariffs on both sides entering the pipeline.
At the heart of the controversy is the US investigation into Chinese intellectual property theft, using Section 301 of the Trade Act of 1974.
The US government claims that China is stealing intellectual property from US companies as part of its economic strategy, but China has called the move to use Section 301 a breach of World Trade Organisation (WTO) rules, as this particular legislation enables the President to act without consulting the global trade body.
However, news that the Chinese ambassador to the US held talks with the acting US Secretary of State yesterday has been taken as a positive sign that the two nations are working hard behind the scenes to avoid a fully-fledged trade war.
Markets have also been calmed by comments from Larry Kudlow, US President Donald Trump’s top economic adviser, who said that these tariffs would likely not come into force for several months.
This affords officials plenty of time to find other solutions to the current dispute.
EUR/USD Exchange Rate Forecast to See Further Volatility if Markets Fear US Trade Data May Fuel Further Protectionism
Considering the focus on the evolving trade dispute between the US and China, the EUR/USD exchange rate could see some volatility later this afternoon after the release of the US trade balance data for February.
Economists expect that the deficit will remain virtually unchanged at -$56.5 billion. Given that President Donald Trump has previously used freshly-released economic data to justify his policies, evidence of a stoic deficit – or a widening one should the trade shortfall defy forecasts – may be used as evidence to support the need for more protectionist policies.
Also set for release today are the US initial and continuing jobless claims figures.
There is no Eurozone data set for release today.
It is likely that as the session progresses the EUR/USD exchange rate will begin to see movement in anticipation of Friday’s key US non-farm payrolls report and speech on the economic outlook from Federal Reserve Chair Jerome Powell.
The approach of these releases could see more investors selling out of the US Dollar, which would push the Euro higher, although the opposite could happen if markets are convinced that the labour market data will print positively and that Powell will sound upbeat on the US economy.
