Euro US Dollar Exchange Rate Climbs as US GDP Underperforms
The Euro US Dollar (EUR/USD) exchange rate is rising this afternoon after US GDP printed below expectations. Meanwhile, the Euro (EUR) is receiving support from hawkish remarks made by European Central Bank (ECB) policymaker, Klaas Knot.
At the time of writing, the EUR/USD exchange rate is trading at around $1.07.
US Dollar (USD) Subdued in Response to Weak US GDP
The US Dollar is losing ground against the Euro today in response to a weaker-than-forecast US GDP reading.
The second estimate of growth in the first quarter revealed the US economy contracted 1.5% against the previous estimate’s 1.4% decline.
The weaker-than-expected growth was attributed to a wider trade gap as imports outstripped export growth.
However, the hawkish Federal Open Monetary Committee’s (FOMC) May meeting minutes, released on Wednesday evening, are limiting the ‘Greenback’s losses.
The minutes report that Federal Reserve policymakers are eager to raise interest rates in attempt to curb soaring inflation.
The minutes’ read:
‘Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings.’
Although this has been largely priced-in by USD investors, the hawkish stance of Fed policymakers continues to underpin USD exchange rates.
In addition, the ‘Greenback’ is receiving some support from the weekly jobless report after benefit claims declined more than expected. Last week, the number of US citizens filing for new unemployment benefits slowed from 218,000 to 210,000, below the forecast 215,000.
Euro (EUR) Enjoys Tailwinds from Hawkish Remarks
The Euro is trading higher against the US Dollar today in response to the hawkish comments from European Central Bank (ECB) policymakers.
ECB policymaker Klaas Knot has confirmed that he’s ‘on board’ for taking aggressive action and confirmed that a 50-basis point hike from the bank is ‘not off the table’ at the upcoming July meeting.
This comes as the ECB aims to rein in surging inflation, which jumped to 7.5% in April.
Meanwhile, the Euro continues to be pressured by Russia’s invasion of Ukraine.
The EU have recently announced a ban on Russian oil imports which has caused outcry amongst a number of Eurozone countries.
However, as the European Commission President, Ursula von der Leyen, does ‘not expect’ an agreement to be reached on the matter at the EU’s leaders’ summit next week, EUR investors are trading cautiously.
Euro US Dollar Forecast: Will US Spending Dent USD?
Looking ahead, the Euro US Dollar exchange rate is likely to be buoyed by the latest figures for US spending.
US spending is expected to slow from 1.1% to 0.7% in April. This may stoke recession fears and weigh on the US Dollar.
Meanwhile, an absence of Eurozone economic data will leave the Euro exposed to political developments, namely Brexit. If the UK unilaterally amends the Northern Ireland protocol, as threatened, it may increase UK-EU tensions and place pressure on the single currency.
