Euro US dollar (EUR/USD) slumps as Germany economic outlook remains weak
The euro US dollar (EUR/USD) exchange rate is facing headwinds this morning following Germany’s latest consumer climate indicator.
At the time of writing the EUR/USD exchange rate is trading at $1.0683, down approximately 0.3% from this morning’s opening rate.
Euro (EUR) hampered by weak German confidence
The euro (EUR) is on the defensive this morning following Germany’s latest consumer confidence release.
The GfK consumer climate indicator for Germany surprised to the downside today, falling to -21.8 in July. This marked the first decline in five months, dipping below the previous month’s downwardly revised reading of -21 and missing forecasts of a slight increase to -18.9.
Economists attributed this setback in consumer confidence to easing income expectations as citizens became less inclined to spend in the third quarter.
Carsten Breski, Global Head of Macro at ING, said:
‘Despite surging real wages and probably the strongest wage growth in a decade this year, policy uncertainty and sluggish economic growth are still denting consumers’ willingness to spend. If there is any positive impact from the Euro 2024 at all, it will have to come from foreign football supporters rather than German consumers.’
Meanwhile, political uncertainty surrounding France’s snap-election continued to weigh on the common currency. Concerns that the far-right National Rally are gain further traction reinforced a sense of political pessimism in the Eurozone, deterring investor interest in the euro.
US dollar (USD) strengthens amid dwindling Fed rate cut bets
The safe-haven US dollar (USD) is climbing higher this morning amid hawkish Federal Reserve interest rate cut bets.
Amid a data-light session, the latest remarks by made by key Fed rate-setters are pulled into focus, adding to USD’s persistent strength.
Fed policymaker Michelle Bowman surprised markets yesterday with a notably restrictive stance, reinforcing the Fed’s hawkish consensus surrounding monetary policy. Addressing persistently high US inflation and a robust American labour market, the Fed hawk hinted that the central bank remains open to further rate hikes under the necessary conditions.
Speaking at an event in London, Bowman said:
‘Inflation in the US remains elevated, and I still see a number of upside inflation risks that affect my outlook. I remain willing to raise the target range for the federal-funds rate at a future meeting should progress on inflation stall or even reverse. Reducing our policy rate too soon or too quickly could result in a rebound in inflation, requiring further future policy rate increases to return inflation to 2% over the longer run.’
Euro US dollar exchange rate forecast: ECB speech in focus
Looking ahead, the European Central Bank’s (ECB) Chief Economist Philip Lane is due to speak this afternoon. Should Lane strike dovish, further diverging ECB-Fed rate cut expectations may sink the common currency against its strengthening US counterpart.
Looking to the US, a lack of notable releases this afternoon may see the ‘greenback’ driven primarily by deferred Fed rate cut bets.
