Euro US Dollar (EUR/USD) Exchange Rate Rangebound as Business Performance Slumps
The Euro US Dollar (EUR/USD) exchange rate is trending sideways today. Major gains for the currency pair are likely being limited by a downturn to private sector output, both in Germany and the Eurozone. A similar fall to US business activity may be helping to limit major losses, however.
Additionally, positive developments surrounding the Russia-Ukraine conflict could also be lending support to EUR/USD today.
At time of writing the EUR/USD exchange rate is at around $1.0220, virtually unchanged from this morning’s opening figures.
Euro (EUR) Slips as Eurozone Private Sector Growth Hit by Soaring Costs
The Euro (EUR) is falling against most of its competitors today after an above-forecast fall to German and Eurozone PMI figures. Eurozone business activity surprised investors by contracting in July as soaring costs saw consumers cut back on spending.
Separately, German private sector growth also unexpectedly fell amid supply chain disruptions and soaring inflation. S&P’s economics director Paul Smith stated that the figures represented ‘the worst performance of private sector activity since the height of the first pandemic wave in the spring of 2020.’
The figures come after the European Central Bank (ECB) rose interest rates above forecasts by 0.5%. Businesses are concerned that the move could harm growth as the central bank seeks to tame runaway inflation.
The single currency may find some support from news today that Russia and Ukraine have reached an agreement over grain exports. UN officials are hopeful that the move will help to alleviate the global food crisis.
US Dollar (USD) Drops as Service Sector Performance Falls to Lowest Point since May 2002
The US Dollar (USD) is slumping today after disappointing PMI figures today. A downturn to US Treasury bond yields is also likely weighing on the currency today.
Today’s PMI figures indicated that private sector activity contracted in July for the first time in 2 years. Service sector growth fell to its lowest point since May 2002 with a reading of 47.0 versus forecasts of 52.6.
Major losses for the safe-haven ‘Greenback’ may be limited by a risk-off mood in the markets, however. Bets on a 0.75% interest rate hike from the Federal Reserve may also be preventing further falls for USD today.
EUR/USD Exchange Rate Forecast: Will Fed Hikes Rates Above Forecasts?
Looking to the coming week for the Euro, a drop to Eurozone economic sentiment in July could pull EUR lower on Thursday. Also on Thursday, a forecast drop to German inflation could ease ECB rate hike bets and prompt the single currency to slip.
On the other hand, a predicted uptick to Eurozone inflation on Friday could bolster the single currency. An expected drop to German GDP growth as well as high unemployment could limit any gains, however.
For the US Dollar, Wednesday could see the currency climb if the Federal Reserve raises interest rates above forecasts. An expected strong recovery in second quarter GDP growth could also help USD to climb. Finally, Friday’s forecast rise to the PCE price index could increase bets on future rate hikes from the central bank. The PCE is the Fed’s preferred method of inflation.
