Euro US Dollar Exchange Rate Fluctuates as Global Recession Fears Linger
The Euro US Dollar (EUR/USD) exchange rate is trading erratically amid a mixed market mood as the ECB turns dovish.
At time of writing the EUR/USD exchange rate is trading around $1.0380, relatively unchanged from this morning’s opening levels.
Euro (EUR) Undermined by Bleak Economic Outlook
The Euro is struggling for demand today, despite a risk-on mood. A string of speeches from European Central Bank (ECB) policymakers provided mixed messages, failing to inspire EUR investors.
In a speech this morning, ECB President Christine Lagarde outlined her economic fears in the Eurozone. Despite confirming the central bank will continue to raise interest rates, Lagarde also warned of a looming recession. An expected further downturn in the Euro area would likely sap demand.
Elsewhere, ECB policymaker Klaas Knot has dampened expectations of further rate hikes. The central bank expects to reach neutral territory at the next policy meeting. Knot added:
‘As the stance of monetary policy tightens further, it will become more likely that the pace of increases will slow.’
US Dollar (USD) Weakened by Optimistic Market Mood
Meanwhile, the US Dollar remains relatively muted today as a cautious optimism grips the market. A slowing of safe-haven flows is sapping demand for the US Dollar as optimism out of China is buoying the global markets.
Reports have begun circulating once more of China finally scaling back their strict zero-Covid policy. An expected relaxing of the restrictions could see a return to normality in a country that has seen its economy teeter on anti-Covid curbs. The news could bolster market sentiment, and in turn, the US Dollar could falter.
However, lending some moderate support to the ‘Greenback’ is the resilient hawkish mood from the Federal Reserve. Despite a softening of inflation, Fed policymakers refuse to accept a slowdown in rate hikes is the right thing to do. Minneapolis Fed President Kashkari admits further interest rate hikes are necessary, as he believes the Fed ‘cannot be overly persuaded by one month’s data.’
Euro US Dollar Forecast: Eurozone PMI to Sink the Euro?
Looking ahead, the Euro US Dollar exchange rate could see further fluctuations with the release of key economic data for the Eurozone. Both PPI figures and preliminary PMI data could weigh heavily on the Euro amid an expected slowdown in both manufacturing and service sectors.
Meanwhile, the US Dollar could climb on a souring market mood. With the UK in a recession and boasting the worst economic growth in the G7, the Eurozone could be edging its way in the same direction. A slowdown in the global economy could see the ‘Greenback’ climb on renewed safe-haven flows.