EUR/USD Tumbles as Record Low German Unemployment Fails to Lift Euro
The Euro US Dollar (EUR/USD) exchange rate has slumped this morning as record low unemployment in Germany was unable to support the pairing.
EUR/USD slumped 0.36% this morning, with the pairing having retreated around half a cent from the three-year high struck on Tuesday.
Record Low German Unemployment Fails to Support Euro (EUR)
The Euro slipped this morning despite Germany’s unemployment rate falling to its lowest levels since levels since reunification last month.
This was the sixth consecutive month of improvement and saw unemployment hold at 5.5% in December after November’s figures were revised down from 5.6%.
The drop has likely be driven by the failure of wage growth to keep up with the continued fall in unemployment in Germany.
While analysts are confident that wage growth will pick up in 2018 as a smaller pool of talent forces employers to raise wages in order to retain and attract new staff, December’s results still comes as a bit of a disappointment.
Jens Kramer, an economist at NordLB in Hanover said;
‘It’s something of a miracle that wage growth was so moderate after we effectively had full employment for two years in Germany. We should eventually see pressure for higher wages this year.’
The lacklustre wage growth figures are also likely to dent the chances of the European Central Bank (ECB) striking a more hawkish tone anytime in the near future, further weakening the appeal of the Euro.
US Dollar (USD) Mounts Recovery but Analysts Warn of Political Uncertainty in 2018
The US Dollar is trending a little higher today, helping the currency to recoup some of the losses it has experienced over the last few days.
However despite the recovery analysts still remain broadly dovish towards USD as concerns over potential political uncertainty in 2018 continue to weigh on the currency.
Particular concerns are the impact of the Republican tax bill and whether Trump could lose his house majority later this year in midterm elections.
Viraj Patel, currencies strategist at ING, said;
‘There are a multitude of factors for our broadly bearish dollar view – the ambiguous economic and repatriation effects of the GOP tax bill, an unsettled US political backdrop ahead of the November midterm elections and the better goldilocks investment opportunities outside of the US.’
EUR/USD Forecast: FOMC Minutes to Weaken USD?
Looking ahead the EUR/USD exchange rate could strike new highs again later this evening as the Federal Reserve publishes the minutes from its latest FOMC policy meeting.
While we already know that two policy makers voted against the Fed’s decision to raise interest rates last month, investors will be eager to learn if any other members shared some of their misgivings.
Investors fear that a number of member are likely to have voiced concerns over the stubbornly low inflation rate in the US, possibly denting optimism that the bank will maintain its current pace of monetary tightening in 2018.
Meanwhile the Euro could be given another shot in the arm tomorrow should the Eurozone’s composite PMI figures confirm that the bloc’s economy expanded at its fastest pace since early 2011.
