Euro US Dollar (EUR/USD) slumps amid hawkish Fed remarks
The Euro US dollar (EUR/USD) exchange rate is losing ground this morning as hawkish Federal Reserve commentary buoys the ‘Greenback’ ahead of market moving releases this afternoon.
At the time of writing the EUR/USD exchange rate is trading at $1.0785, down approximately 0.4% from this morning’s opening rate.
Euro (EUR) falters amid weak German retail sales
The Euro (EUR) is facing headwinds this morning following mixed German data releases.
Germany’s unemployment rate held steady at 5.9% in March as forecast, with Destatis, the Federal Statistics Office, reporting an increase of only 4000 unemployed German citizens.
Destatis commented:
‘According to provisional calculations of the Federal Statistical Office (Destatis), the seasonally adjusted number of persons in employment rose slightly by 14,000 (0.0%) compared with the previous month. In January 2024, the number of persons in employment was up by 56,000 month on month.’
However, capping EUR’s upside potential this morning is a weighty slump in German retail sales. Sales unexpectedly declined on a monthly basis, falling by 1.9% in February, rather than rising by 0.3% as anticipated.
The disappointing release served to dampen investor interest in the common currency, marking a fourth consecutive slump in retail activity and reinforcing concerns that consumer spending remains weak in the Eurozone’s largest economy.
Further stymieing EUR’s gains are market estimates of imminent monetary loosening from the European Central Bank (ECB). With markets pricing in an 85% chance of a June rate cut, the euro may remain on the defensive for the remainder of the session.
US dollar (USD) strengthens on hawkish Fed comments
The US dollar (USD) is gaining ground against the majority of its peers this morning following last night’s hawkish rhetoric from Federal Reserve policymakers.
Fed Governor Christopher Waller advocated for continually restrictive monetary policy as sticky US inflation persists.
The Fed hawk commented:
‘There is no rush to cut the policy rate. Recent data tells me that it is prudent to hold this rate at its current restrictive stance perhaps for longer than previously thought to help keep inflation on a sustainable trajectory toward 2%.’
According to the the CME FedWatch Tool, the likelihood of a June rate cut currently stands at 61%, which is lower than the monetary loosening expectations for other major banks, including the ECB and the Bank of England (BoE).
Amid further push back from Fed policymakers, the ‘Greenback’ may stand to climb higher against its major rivals as the week nears its end.
Euro US Dollar Exchange Rate Forecast: Eyes on US Jobs Data
Going forwards, the core catalyst of USD movement will likely be the latest initial jobless claims data, due this afternoon. Forecast to report a slight increase in newly unemployed Americans claiming benefits, an expected reading of 215,000 will likely dent the ‘Greenback’, reigniting concerns of a loosening US labour market.
The Fed’s preferred gauge of inflation, the core PCE price index is also due for release tomorrow and could imbue USD exchange rates with significant volatility.
Economists expect the index to report inflation at 0.3% in February, edging slightly lower from January’s 0.4% leap. Sticky US inflation could serve to underpin recent hawkish remarks from Fed policymakers, thereby lifting the US Dollar amid deferred interest rate cut bets.
For the euro, a data-light afternoon could see EUR trade in a wide range against its peers, moving on its negative USD correlation.
Otherwise, with Easter market closures over the weekend, the common currency may see limited trade until next Tuesday.
