Euro US Dollar (EUR/USD) Exchange Rate Flat amid German Recession Predictions
The Euro US Dollar (EUR/USD) exchange rate is trapped within narrow boundaries today, amid forecasts that Germany may enter a recession.
At the time of writing, EUR/USD is trading at around US$1.0778, showing little movement form the morning’s opening rates.
Euro (EUR) Muted amid Downbeat German Economic Outlook
Due to a lack of impactful macroeconomic data, the Euro (EUR) is enduring rangebound trade so far today.
Because of this, the Euro may be coming under pressure from downbeat analysis of the German economic outlook.
Bundesbank, the German central bank, warned that economic output is likely to have softened further during Q1 2024. As this would follow on from shrinking activity in Q4 2023, it could suggest a technical recession.
The bank stated that:
‘There is still no recovery for the German economy. Output could decline again slightly in the first quarter of 2024. With the second consecutive decline in economic output, the German economy would be in a technical recession. The weak phase in the German economy that has been ongoing since the beginning of the Russian war of aggression against Ukraine will thus continue.’
As Germany is the Eurozone’s largest economy, expectations of a recession are likely weighing on the bloc’s wider outlook. Because of this, the Euro is likely struggling to attract support.
US Dollar (USD) Muted amid President’s Day Closures
The US Dollar (USD) is seeing its movements tempered today, as the country celebrates President’s Day.
This is resulting in thin trading conditions for the ‘Greenback’ as markets are closed in celebration of the federal holiday.
However, the US Dollar is likely being underpinned by continued bets on tight monetary policy from the Federal Reserve.
Following last week’s inflation and PPI data, inflationary pressures clearly remain in the US, meaning the Fed is likely to keep interest rates unchanged for longer.
Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, commented:
‘Friday’s release of strong January US PPI data warns that the 29 February release of the core PCE inflation data – the Fed’s preferred reading – could also print a high 0.4% month-on-month and continue to thwart the disinflation trade.’
Euro US Dollar Exchange Rate Forecast: FOMC Minutes in Focus
Looking ahead for the US Dollar, the core catalyst of movement is likely to be the latest FOMC meeting minutes, due on Wednesday evening.
As recent communication from the Federal Reserve has skewed hawkish, if the minutes follow suit USD exchange rates may rally. However, if they display a more moderate approach to interest rate cuts, USD may slip.
For the Euro, tomorrow brings the release of the latest consumer confidence data for the Eurozone at large. Consumers are expected to remain pessimistic in February, but for this to have diminished slightly.
If the outlook remains deeply negative as expected, the common currency could struggle to attract support from investors.
