Euro US dollar (EUR/USD) muted as German data misses forecasts
The euro US dollar (EUR/USD) exchange rate is trading without a clear direction this morning following mixed German releases.
At the time of writing the EUR/USD exchange rate is trading at $1.0829, virtually unchanged from this morning’s opening rate.
Euro (EUR) wavers following German trade data
The euro (EUR) is fluctuating this morning following mixed releases from the Eurozone’s largest economy.
Germany’s trade surplus missed forecasts, narrowing to €21.4 billion in February rather than falling to €25.5 billion as expected. Exports also dropped by 2% in the same month, retreating from January’s notable 6.3% increase.
The downbeat data served to initially dampen investor interest in EUR this morning, with declining trade surplus signalling an ongoing German recession during the first quarter of year.
However, a notable increase in Germany’s accompanying industrial data served to offset any significant losses for the common currency. Surprising to the upside, factory activity in February unexpectedly rose by 2.1%, rather than contracting by 0.3%. The domestic federal statistics office, Destatis, attributed the upturn to stronger-than-anticipated performance in the construction sector.
US dollar (USD) subdued amid lack of data
The US dollar is quiet this morning amid a data-light start to the week.
With vital US inflation data due for release on Wednesday, the core catalyst of USD exchange rates in the meantime will likely be shifting Federal Reserve interest rate expectations.
With the CME’s FedWatch Tool showing a 51% chance of a June interest rate cut, further push back against imminent monetary loosening could lend the ‘greenback’ some support.
Lottie Gosling, economist at investment bank Investec noted that significance of the mid-week release, stating:
‘Several FOMC members have commented on the ‘bumpiness’ of US inflation in recent months and so will be keen for evidence that the disinflation trend is indeed continuing.’
With headline inflation due to edge slightly higher this month, investors may stand reluctant in the meantime to place any aggressive bets on USD, ahead of confirmation of a stubborn US CPI.
In the meantime, an unclear market sentiment could further stymie the safe-haven ‘greenback’ as the session continues.
Euro US dollar exchange rate forecast: ECB interest rate decision in focus
The core driver of EUR exchange rates this week will most likely be the European Central Bank’s (ECB) monetary policy update. Markets widely expect the central bank to enact another interest rate hold, keeping rates at the twenty-two year high of 4.5%. Should the ECB’s forward guidance signal a more towards looser policy in the coming months, EUR may slump against its peers.
Alternatively, a hawkish outlook could see the common currency strengthen.
For the US dollar, a lack of notable economic releases may see the latest consumer inflation expectations impact USD movement. Confirmation that American consumer expect inflation to continue easing this year may see USD stumble.
Then on Tuesday, a speech from Fed Neel Kashkari may imbue the ‘greenback’ with additional volatility. Should Kashkari strike hawkish USD could strengthen.
