Euro US Dollar (EUR/USD) Exchange Rate Drops after Poor German GDP Figures
The Euro US Dollar (EUR/USD) exchange rate is falling today. Strong US inflation data and the prospect of further Federal Reserve rate hikes may be pulling the pair lower.
Poor German GDP data may also be deepening losses for the exchange rate today.
At time of writing the EUR/USD exchange rate is at around $1.0541, which is down roughly 0.5% from this morning’s opening figures.
Euro (EUR) Climbs Despite Possibility of German Recession
The Euro (EUR) is likely finding support from a pullback in risk appetite today. EUR may be seeing any gains capped by poor German GDP data, however. The figures may also be prompting losses against the US Dollar (USD).
The final reading of GDP data for the fourth quarter of 2022 printed an above-forecast contraction of 0.4% in Germany’s economy. Analysts believe that the data makes a contraction in the first quarter of 2023 even more likely.
EUR could be finding further support from hawkish European Central Bank rhetoric today. Speaking today, ECB policymaker Joachim Nagel signalled that high Eurozone inflation could mean further rate hikes.
US Dollar (USD) Bolstered by Above-Forecast PCE Rise
The US Dollar (USD) is making strong headway today. The safe-haven ‘Greenback’ may be benefitting from a risk-off market mood.
Better-than-expected inflation data could also be bolstering USD today. The core PCE price index, the Fed’s preferred measure of inflation, rose by 0.6% in January versus the expected 0.4% increase.
The figures may also be prompting increased bets on further policy tightening from the Fed. Markets are now fully pricing in a 25bps rate hike from the central bank at their next meeting.
Jeffrey Roach, chief economist at LPL Financial, said:
‘Clearly, tighter monetary policy has yet to fully impact consumers and shows that the Fed has more work to do in slowing down aggregate demand.’
EUR/USD Exchange Rate Forecast: Will Eurozone Inflation Dip Pull EUR Lower?
Looking to the week ahead for the Euro, a glut of data from Germany on Wednesday could have a mixed effect on the Euro. Initially, a forecast recovery in January’s retail sales could boost EUR if the data prints as expected.
On the other hand, an expected uptick in February’s unemployment could keep pressure on EUR. Eurozone unemployment is also expected to remain high in January.
Finally on Wednesday, Germany’s February inflation is expected to remain unchanged at 8.7%. If the data prints as expected it could counteract the effect of the unemployment data and boost EUR.
Thursday’s Eurozone inflation figures could curb any gains from the German data, however. February’s Eurozone inflation is set to drop to 8.6% which may prompt speculation of a slowdown in ECB policy tightening.
For the US Dollar, a forecast sharp downturn in January’s durable goods orders could weigh on USD if the figures print as expected. Evidence of weakness in the US economy could also increase the prospects of a hard landing.
The latest US private sector PMIs on Wednesday and Friday could have a mixed effect on USD. The country’s manufacturing sector is expected to remain in negative territory in February. On the other hand, a positive reading for the US services sector could boost the US Dollar.
Finally for USD, Thursdays jobless claims could bolster the US Dollar if they remain low as predicted. The figures are set to point to a continually tight labour market.