Euro US Dollar (EUR/USD) Exchange Rate Slips despite Moderately Positive Eurozone Data
The Euro US Dollar (EUR/USD) exchange rate is falling this afternoon despite some welcome news about the bloc’s largest economy. Germany’s economy grew 1.9% in 2022, marginally beating forecasts.
At time of writing, the EUR/USD exchange rate is around $1.0805, a half percent slip from this morning’s opening levels.
Euro (EUR) Subdued Despite Positive Data
The Euro (EUR) is struggling for demand in the tail end of the week despite positive economic data. Full year GDP growth in Germany printed above forecasts and analysts are expecting Europe’s biggest economy to escape a recession, for winter at least.
However, output slowed to stagnation levels in the Q4, but Economy Minister Robert Habeck is still hopeful that the economic slowdown could be milder and shorter than predicted. Germany’s finance minister also felt optimistic and claimed Germany’s economy is both robust and adaptable.
Meanwhile, Eurozone industrial production also exceeded forecasts and rose 1% MoM in November, against an expected 0.5% climb. Recording the biggest jump in three months, EUR investors could be buoyed at the prospect of a strong and resilient economy.
US Dollar (USD) Climbs Despite Dovish Fed
The US Dollar is still clinging to gains this afternoon despite inflation softening for the sixth straight month, tempering interest rate hike bets. The ‘Greenback’ suffered from selling pressure in the aftermath of the inflation data as headline CPI dropped to its lowest level since October 2021.
A further easing of inflation has seen both USD investors and Fed speakers alike temper rate hike expectations. In a speech, Philadelphia Fed President Patrick Harker admitted that it ‘made sense to slow down the pace of rate hikes.’ Harker added:
‘I expect that we will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed. In my view, hikes of 25 basis points will be appropriate going forward.’
However, lending some modest support to the safe-haven ‘Greenback were remarks from St Louis Fed President James Bullard. He remarked that even though inflation softening was ‘encouraging’, another 50bps hike at the next meeting is feasible. Bullard said:
‘I think we have a lot of work to do as a Fed in order to make sure that we get inflation lower going forward.’
Euro US Dollar Exchange Rate Forecast: Risk Appetite to Rescue the Euro?
Looking ahead to next week’s session, the Euro US Dollar exchange rate could see further movement amid a lack of major data to open the week. In lieu of data, the pairing could trade on market sentiment. With US inflation softening, global risk sentiment could finally find something concrete to cheer about.
Elsewhere, the Ukraine conflict will remain in sharp focus for EUR investors. Any developments over the validity of Soledar being taken by Russian forces could influence proceedings. Escalating conflict could weigh on the Euro and drag it lower.
