Euro US Dollar Exchange Rate Fluctuates as China Teases Relaxing Covid Restrictions
The Euro US Dollar (EUR/USD) exchange rate is trading erratically on the heels of downbeat Eurozone data amid a significantly improved risk sentiment.
At time of writing the EUR/USD exchange rate is trading around $1.0571, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Subdued amid Risk-On Impulse
Meanwhile, the US Dollar failed to regather its strength this morning amid ahead of key economic data. The US Dollar index continues to trade at its weakest level in six months after falling by 1.5% last week. Further positive news out of China continues to sap demand for safe-haven currencies.
The risk sentiment improved significantly over the weekend as reports from China indicate a further easing of strict Covid restrictions. Urumqi, the capital city of the Xinjiang region, announced that restaurants, markets, and shopping centres will open from Monday. Shanghai and other major cities have announced the scrapping of PCR testing requirements for entering outdoor public venues. A continued relaxing of Covid restrictions could finally allow the world’s second largest economy in China to recover.
Elsewhere, an expected softening in the ISM services, despite remaining in expansion territory, points to a slowing economy. However, the alternative PMI measure from S&M Global, has forecasted a fifth straight consecutive decline. A caveat to this score, however, is that it excludes public sector and retail.
Euro (EUR) Quiet amid Disappointing Economic Data
The Euro started the week’s session on the front foot as positive news out of China bolstered the market mood, and the single currency. However, disappointing data looks to keep a firm lid on any meaningful gains.
However, concerning economic releases weighed heavy and capped any further gains. Retail sales fell lower-than-expected in both monthly and yearly figures. MoM, retail sales fell 1.8%, following a 0.8% growth in September. It was the largest drop in trade since December 2021, amid a myriad of economic woes of soaring inflation and borrowing costs.
European Central Bank (ECB) policymaker Gabriel Makhlouf lent modest support to the Euro as they expressed his thoughts that the central bank could increase rates beyond 3%, and that inflation may not have yet peaked. Makhlouf added:
‘I’m not sure it (inflation) has peaked, I’m reserving judgment on that but I would hesitate to say that it’s peaked. Just the fact that it’s fallen in the flash estimate for November, you know one swallow doesn’t make a summer.’
Euro US Dollar Forecast: Policy Divergence to Boost the Euro?
Looking ahead, the Euro US Dollar exchange rate could see increased movement next week with the monetary policy updates from the central banks. Both the Fed and the ECB are set to announce their latest interest rate decisions. An expected slowdown in the Fed could see a boost for the Euro.
In the meantime, ISM non-manufacturing PMI for the US are set to print later today. Another expected slowdown in the service sector could weigh on the ‘Greenback’.
