Euro to US Dollar Exchange Rate Lower as Investors Anticipate US Growth Report
Despite US Dollar (USD) weakness earlier in the week, the Euro to US Dollar (EUR/USD) exchange rate looks on track to end the week near its worst weekly levels unless Friday’s US growth results surprise investors.
EUR/USD opened this week at the level of 1.1729. Initially EUR/USD losses were limited and the pair returned to the week’s opening levels on Thursday.
However, the latest European Central Bank (ECB) policy decision and Eurozone data hit the pair to trend near a low of 1.1627 at the time of writing on Friday.
Towards the end of the week, the US Dollar benefitted from weakness in the Euro (EUR) due to the inverse correlation of the pair.
Following the key US growth data due today, EUR/USD will be driven by slews or key Eurozone and US data throughout next week.
Euro (EUR) Exchange Rates Slide as European Central Bank (ECB) Stays Pat
The European Central Bank (ECB) held its July monetary policy decision on Thursday, which was the most anticipated event of the week for Euro investors.
Initially the bank’s tone saw mixed reaction from investors, but ultimately the tone was seen as relatively cautious and dovish and this left the Euro less appealing towards the end of the week.
As was widely expected, the ECB left monetary policy frozen and indicated that its quantitative easing (QE) scheme would still be unwound by the end of 2018.
At the same time though, the bank showed no signs of becoming more hawkish about its plans and indicated its course would remain the same. This ultimately disappointed bullish investors hoping for the bank to move its interest rate hike plans forward slightly.
According to Chuck Tomes, senior investment analyst at Manulife Asset Management, ECB President Mario Draghi was too concerned about uncertainties like US trade protectionism to take a more hawkish tone:
‘You saw Draghi definitely taking a dovish approach,
He’s focused on the current environment where he’s concerned about trade.’
On top of this, France’s Q2 growth projection unexpectedly came in at 0.2% rather than rising to the forecast 0.3%.
US Dollar (USD) Exchange Rates Benefit from Euro Weakness Ahead of US Growth
Demand for the US Dollar was a little weaker towards the beginning of the week. Market demand for ‘safe haven’ currencies like the US Dollar dampened slightly as global trade war fears lightened.
However, ultimately a persistently solid US economic outlook and late-week weakness in the Euro made it easier for the US Dollar to push EUR/USD lower on Thursday and Friday.
The US Dollar typically benefits from Euro weakness due to the inverse correlation the currencies share, and even underwhelming US data didn’t hold the currency back much.
US durable goods orders data from June fell short, but this didn’t have much impact on the US economic outlook. According to Junichi Ishikawa from IG Securities, other factors did benefit the US currency:
‘The Dollar is higher across the board and this reflects the lift it is enjoying from fundamental factors, notably higher US yields and Wall Street shares amid improving risk appetite,’
Euro to US Dollar (EUR/USD) Forecast: Slews of Eurozone Data and Fed Decision Ahead
The European Central Bank (ECB) didn’t show any shift in tone regarding Eurozone monetary policy on Thursday, but if next week’s Eurozone data surprises investors it could still strongly influence ECB speculation.
Next week has the potential to be a particularly influential week for both the Euro and US Dollar, as key data from the Eurozone and US will be published and the Federal Reserve will hold its August policy decision.
Key Eurozone confidence data and German Consumer Price Index (CPI) inflation figures will come in on Monday, but Tuesday’s session will see the publication of most of the week’s most influential Eurozone figures.
German retail sales and unemployment, French inflation data, Eurozone growth projections, inflation and unemployment will be published on Tuesday alone.
Data falling in line with expectations would leave Euro movement limp, but if this key data notably beats forecast the Euro could strengthen as European Central Bank interest rate hike bets would rise.
The Federal Reserve decision next week is unlikely to have a bearish effect on the US Dollar unless it surprises investors, but that and US Non-Farm Payroll data is most likely to influence the Euro to US Dollar (EUR/USD) exchange rate next week.