Euro US Dollar (EUR/USD) Exchange Rate Slumps amid EU GDP Forecast Miss
The Euro US Dollar (EUR/USD) exchange rate is weakening this morning, as Eurozone GDP printed below forecasts.
At the time of writing, EUR/USD is trading at around US$1.0987, a fall of roughly 0.4% from the morning’s opening rates.
Euro (EUR) Curtailed by Disappointing GDP Release
The Euro (EUR) is losing support this morning, following the release of the bloc’s latest GDP data. First quarter growth missed forecasts and printed at 0.1%, as opposed to the expected 0.2%.
While up from a stagnant 0% and indicating that the Eurozone has skirted a recession, it still remains less than satisfying for EUR investors. The key drivers were noted as being warmer winter weather, lower energy prices and fiscal stimulus.
However, economists believe that the overall outlook is less than promising. Carsten Brzeski, Global Head of Macro at ING, commented:
‘The positive momentum in industry and wage increases against the impact of monetary policy tightening and a looming US recession. In true European tradition, neither of the two will win. The compromise for the eurozone economy will be subdued growth going into 2024.’
Because of this, investors could be readjusting their expectations of further tightening. A 25bps hike from the European Central Bank (ECB) may be on the cards as inflationary pressures appear to ease.
US Dollar (USD) Strengthens as Investors Await Core PCE Data
The US Dollar (USD) is strengthening this morning, as investors focus on this afternoon’s core PCE price index.
The yearly data point acts as the Fed’s preferred gauge of inflation. While economists forecast this to cool to 4.5%, it would likely point to inflation remaining sticky.
Because of this, investors are likely moving to support USD as rate hike bets increase, as they aim to make return on higher interest rates.
Furthermore, investors may be betting on a hawkish stance from the Fed. Analysts at ING commented:
‘We doubt it will switch fully to the idea that future moves will be “data dependent” given inflation is still running well above target and it doesn’t want to give the market further ammunition to anticipate a turn in policy.’
EUR/USD Exchange Rate Forecast: German Inflation in Focus
Later today, the latest German consumer price index is due to print. Over April, German headline inflation is forecast to cool from 7.4% to 7.3%. If this prints in line with forecast, it may weigh on the single currency and point to a need for less tightening from the ECB.
Looking ahead to next Tuesday, the Eurozone’s CPI data is scheduled to print. For April, headline inflation is forecast to hold at 6.9%, thus remain sticky.
If this forecast is accurate, it could bring strength to the Euro and reinforce a need for a higher hike at the ECB’s next meeting.
For the US Dollar, beyond this afternoon’s core PCE data, Monday sees the release of the latest ISM manufacturing index.
Activity in the sector is forecast to remain in contractionary territory, but have shown modest signs of improvement by increasing to 46.6 from 46.3.
If this prints accurately, it may weigh on the US Dollar by pointing to continual weakness in the sector. With the US GDP data missing forecasts, it may prompt further bets on a pause from the Fed and dent the ‘Greenback’.