Euro US dollar (EUR/USD) wavers as German morale sinks
The euro US dollar (EUR/USD) exchange rate is rangebound this morning following a downbeat German ZEW economic sentiment index.
At the time of writing the EUR/USD exchange rate is trading at $1.1137, virtually unchanged from this morning’s opening rate.
Euro (EUR) stymied by sinking German optimism
The euro (EUR) is facing light headwinds this morning following a significantly weaker-than-forecast German ZEW economic sentiment index.
The indicator revealed that morale in the bloc’s largest economy fell to its lowest level since October 2023 this month, sinking from August’s seven-month low of 19.2 and missing forecasts of 17.
ZEW President Professor Achim Wambach, commented:
‘The hope for a swift improvement in the economic situation is visibly fading.
In the latest survey, we once again observe a noticeable decline in economic expectations for Germany. The number of optimists and pessimists is now evenly balanced.’
Marking the third consecutive drop in economic sentiment, dwindling economic expectations in one of the bloc’s key economies will likely weigh on the single currency today.
US Dollar (USD) wobbles ahead of retail data
The US dollar (USD) is largely muted this morning ahead of the latest US retail data, due for release this afternoon.
However, with the Federal Reserve’s hotly anticipated interest rate decision due for release tomorrow evening, USD investors may remain reluctant to place any aggressive bets on the ‘greenback’ in the meantime.
Francesco Pesole, FX strategist at ING, said:
‘Markets have continued to consolidate their bearish dollar positions ahead of tomorrow’s FOMC announcement. This FX dynamics is a direct consequence of the steady dovish repricing in rate expectations, with the swap market now attaching around 70% implied probability (43bp) of a 50bp cut tomorrow.
Remember that the last two key data releases (jobs and inflation) did not really point to a half-point cut, and growing dovish bets actually started late last week on the back of some media reports that tomorrow would be a tight decision between 25bp and 50bp. Our economics team is narrowly favouring 25bp, but admit it’s a very close call.’
While the ‘greenback’ has managed to recoup some of its recent losses this morning, it now stands largely unmoved as markets brace for the Fed’s looming monetary policy update.
In the meantime, an improving market sentiment may weigh on the US dollar this morning, due to its safe-haven status.
Euro US dollar exchange rate forecast: US retail data in focus
Looking ahead, the latest US retail data is due to reveal a decline in American consumer activity throughout August. Economists expect to see 0.2% growth in retail sales, which would indicate a marked deceleration from the previous month’s 1% growth. Should the data print as forecast, USD may dip lower this afternoon.
Looking to the Eurozone, a data-light afternoon could see the single currency trade on its negative USD correlation, with any weakness in the ‘greenback’ likely to lift EUR.