EUR/USD Exchange Rate Slumps as EUR Sentiment Remains Low
The Euro US Dollar (EUR/USD) exchange rate ticked up briefly today but has since returned to yesterday’s 20-year low as Euro (EUR) sentiment remains subdued by energy headwinds, recession fears and weak German data.
At the time of writing, EUR/USD is trading at $1.0174, down slightly from today’s opening levels.
Euro (EUR) Falls as Multiple Headwinds Converge
The Euro has weakened against the majority of its peers today as risk-on headwinds combine with fears of an energy shortage, recession fears and poor German data to exert significant downside pressure upon the single currency.
While the Euro is not strictly a safe-haven investment, improving market mood draws support away from the currency in exchange rates against perceived riskier assets such as the Australian and New Zealand Dollars (AUD/NZD).
Meanwhile, fears of a recession persist amidst rising energy prices on supply concerns. European Commission President Ursula von der Leyen announced yesterday that Europe should prepare itself for the eventuality that Russian cuts off all gas supplies, triggering a fresh wave of panic.
Evidence of more generalised inflation alongside an uneven economic recovery in the bloc had already sparked worries that the European Central Bank (ECB)’s policy tightening strategy could depress the economy further.
Today, wealth management firm Brewin Dolphin reiterates that ‘gas supplies and the war in Ukraine remains the most critical determinant of relative European bond performance.’
Finally, the single currency has been further depressed by the release of Germany’s industrial production data. Production edged up by 0,2% in May, slowing sharply on April’s 1.3% growth as a shortage of primary products and supply chain constraints due to the war in Ukraine and lockdowns in China continue to weigh on production.
US Dollar (USD) Subdued Amid Risk-on Trading Conditions
The US Dollar (USD) lacked support through today’s session as a risk-on market mood sapped appeal for the safe-haven currency.
The ’Greenback’ had been enjoying tailwinds so far this week as trading sentiment remained predominantly bearish, but profit-taking has dented USD’s rally while today’s session opened with US stock futures posting modest daily gains.
Risk appetite was likely revived by a combination of factors. Reports suggest that China is contemplating a $220 billion fiscal stimulus program in the second half of 2022, to address the ongoing real estate crisis and revive consumer demand; elsewhere, hawkish Federal Reserve rhetoric promises to curtail inflation pressures in the world’s largest economy.
Elsewhere, US data disappointed, attracting additional ‘Greenback’ downside. The country’s balance of trade revealed a deficit of $85.5bn – a smaller-than-expected reduction on April’s figure – while initial jobless claims increased last week rather than falling as expected.
235 thousand individuals filed new claims for jobless benefits in the week ending 2 July, compared with 231K the week before.
EUR/USD Exchange Rate Forecast: Market Mood to determine Movement?
Looking ahead, trading sentiment could influence the EUR/USD exchange rate tomorrow, as the ‘Greenback’ is likely to rebound if a risk-off mood is triggered. Recession fears dominate Euro dynamics at the present and may revive risk aversion if today’s bullish impulses are exhausted overnight.
Furthermore, US employment data could stimulate an upswing in the Euro US Dollar trading pair, as unemployment in America is expected to have remained the same in June as in May, demonstrating a disappointing lack of improvement in the labour market.