EUR/USD Exchange Rate Drops as Risk Aversion Subdues Euro
The Euro US Dollar (EUR/USD) exchange rate is falling today, as widespread risk aversion caps Euro (EUR) gains and draws support toward the safe-haven US Dollar (USD).
Mixed EU data also contributes to EUR trading, as German factory orders increased in May but retail sales in the Euro area rose by less than expected.
At the time of writing, EUR/USD is trading at $1.0191, down 0.6% from today’s opening levels.
Euro (EUR) Consolidates Losses as EU Data Disappoints
The Euro is falling against its peers today as a risk-off market mood subdues the currency alongside mixed data from Germany and the wider Euro area.
Markets are bearish amid ongoing concerns that a recession is on the cards – this afternoon’s service-sector data from the US is expected to record a fall in activity, exacerbating worries of a global economic slowdown.
Although German factory orders grew in May, exceeding expectations of a 0.6% fall, gains were capped by rising gas prices in the Eurozone: Goldman Sachs has raised its price forecasts higher still ahead of upcoming maintenance work on the Nordstream 1 pipeline.
Furthermore, German construction activity increased in June by less than expected, and retail data in the Euro area missed forecasts. May’s sales rose by 0.2%, rebounding from a 1.4% drop in the previous period – but rising consumer prices weighed on affordability.
Looking ahead, scepticism over the European Central Bank (ECB)’s new anti-fragmentation tool could also weigh upon Euro trading sentiment.
The central bank promised to introduce a new tool to prevent disparity in bond yields across various Eurozone countries, but so far have been unforthcoming in the details.
US Dollar (USD) Attracts Safe-Haven Support
The US Dollar is attracting safe-haven support today ahead of the release of June’s ISM non-manufacturing PMI. Volatile trading conditions inspire USD upside as recession fears combine with cost-of-living concerns and political unrest to dampen market sentiment.
Likely to inspire EUR/USD later are the FOMC minutes from June’s policy meeting, which will be released this afteroon. Investors appear hesitant to place bullish bets ahead of the release.
The Federal Reserve bank raised interest rates in June by 75bps in its largest hike since 1994, as consumer price inflation hit a 40-year high; the bank’s aggressive policy tightening stance spooked economists who worried that it could trigger a recession.
However, chairman Jerome Powell asserted that cooling inflation was the bank’s priority, even amidst an economic slowdown. In the current climate, Powell may temper his remarks to reflect burgeoning recession fears – he has since said that subsequent 75bps rate hike is not his base case for July.
Nevertheless, traders are pricing in about an 83% chance of another three-quarter point hike in July – an expectation that may be dispelled or encouraged today.
Roberto Perli, head of global policy at Piper Sandler, remarks ‘when markets are in turmoil, investors always look at the Fed as the entity that can save the day.’
Today is no different, Perli explains: the bank is unlikely to pause or change its course for the time being.
EUR/USD Exchange Rate Forecast: Fedspeak, Job Openings to Affect Rates?
Looking ahead, the US docket also features a speech from Fed policymaker John Williams later today, alongside a JOLTs job openings report.
If Williams strikes a hawkish tone ahead of the Fed minutes, USD may climb further; if job openings fell in May, however – reflecting a tighter labour market – market mood could improve. This may draw safe-haven appeal away from the ‘Greenback’.
