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Euro to US Dollar Exchange Rate Gains Limited by Underwhelming Eurozone Inflation Stats
Published: 30 Nov at 1 PM Tags: Euro Exchange Rate, Dollar Exchange Rate, Currency Exchange, Euro Crisis, UK, Exchange Rates, Economy, Inflation,
Despite gaining solidly on speculation that the US and China could reach some kind of trade agreement at an upcoming G20 summit, the Euro to US Dollar (EUR/USD) exchange rate’s gains were limited by some underwhelming Eurozone stats and some late-week demand for safe havens.
After opening the week at the level of 1.1338, EUR/USD spent the first half of the week tumbling on weak Eurozone data before jumping arounds a cent on Thursday. EUR/USD touched on a weekly high of 1.1398 on Friday morning, but has since slipped slightly from its best levels as investors become anxious ahead of the G20 meeting.
As the Euro and US Dollar are rival currencies, they often see a negative correlation. Weakness in the US Dollar often leads to Euro gains, and this has been the primary cause of Euro strength this week.
Support for the Euro has actually been fairly weak otherwise, with much of the Eurozone’s recent data continuing to indicate that the Eurozone’s economy is slowing towards the end of the year.
This limited the Euro’s gains against the US Dollar throughout the week overall.
The week’s Eurozone data was mixed overall, with German unemployment and Eurozone business confidence beating forecasts but key inflation prints falling short.
German Consumer Price Index (CPI) projections fell short of market forecasts on Thursday, followed by slower than expected inflation projections for the Eurozone overall on Friday.
The Eurozone’s yearly inflation rate was forecast to slip slightly from 2.2% to 2.1%, but instead slid to just 2.0%. Core inflation also unexpectedly slowed, from 1.1% to 1.0% rather than remaining at 1.1% as forecast.
On top of this, the Eurozone’s key unemployment rate remained at 8.1% in October rather than improving to the forecast 8.0%.
In reaction to the underwhelming data, coupled with ongoing Italian political uncertainties, analysts predicted that the European Central Bank (ECB) would be left with little reason to consider hiking Eurozone interest rates any time soon.
Despite this though, the Euro was ultimately stronger last week as market anticipation for the upcoming G20 summit in Argentina drove investors away from safe haven currencies like the US Dollar.
Speculation that US President Donald Trump and China President Xi Jinping could reach some kind of breakthrough in long-lasting US-China trade tensions at the G20 summit made investors more willing to take risks throughout the week.
This led to US Dollar weakness, but the currency’s strength was further limited by unexpected caution from the Federal Reserve.
After previously hinting that US interest rates were still well below neutral, Fed Chairman Jerome Powell indicated in a speech this week that the rate was ‘just below’ neutral and would likely not rise much above it.
His comments weighed on Fed interest rate hike bets, and left markets speculating that the Fed may be closer to the end of its rate hike cycle than expected. This caused US Dollar losses on Wednesday evening.
As for what’s next, the Euro to US Dollar exchange rate is highly likely to react to the events of the G20 summit from Friday evening onwards.
When markets open on Monday, the Euro and US Dollar are both likely to move based on weekend outcomes and reaction to the G20 meeting, especially any potential developments in US-China trade tensions.
Any hints of de-escalation in trade jitters would make investors even more willing to take risks, which would cause US Dollar weakness and help the Euro to advance further.
The opposite is also true though. If US-China trade tensions worsen instead, the US Dollar is likely to surge and EUR/USD will reverse most of its recent gains.
Multiple notable Eurozone and US ecostats will be published throughout the week, which may also influence EUR/USD movement if it surprises.
Eurozone and US manufacturing PMI data for November will be published on Monday, followed by non-manufacturing PMI data on Wednesday.
Eurozone retail sales and US employment data from ADP will be published on Wednesday too, with German and US factory orders stats following on Thursday.
Friday may be the most influential session of the week however, with Eurozone Gross Domestic Product (GDP) growth starts, Eurozone employment change figures and key US Non-Farm Payroll data rounding off the week.
After opening the week at the level of 1.1338, EUR/USD spent the first half of the week tumbling on weak Eurozone data before jumping arounds a cent on Thursday. EUR/USD touched on a weekly high of 1.1398 on Friday morning, but has since slipped slightly from its best levels as investors become anxious ahead of the G20 meeting.
As the Euro and US Dollar are rival currencies, they often see a negative correlation. Weakness in the US Dollar often leads to Euro gains, and this has been the primary cause of Euro strength this week.
Support for the Euro has actually been fairly weak otherwise, with much of the Eurozone’s recent data continuing to indicate that the Eurozone’s economy is slowing towards the end of the year.
This limited the Euro’s gains against the US Dollar throughout the week overall.
The week’s Eurozone data was mixed overall, with German unemployment and Eurozone business confidence beating forecasts but key inflation prints falling short.
German Consumer Price Index (CPI) projections fell short of market forecasts on Thursday, followed by slower than expected inflation projections for the Eurozone overall on Friday.
The Eurozone’s yearly inflation rate was forecast to slip slightly from 2.2% to 2.1%, but instead slid to just 2.0%. Core inflation also unexpectedly slowed, from 1.1% to 1.0% rather than remaining at 1.1% as forecast.
On top of this, the Eurozone’s key unemployment rate remained at 8.1% in October rather than improving to the forecast 8.0%.
In reaction to the underwhelming data, coupled with ongoing Italian political uncertainties, analysts predicted that the European Central Bank (ECB) would be left with little reason to consider hiking Eurozone interest rates any time soon.
Despite this though, the Euro was ultimately stronger last week as market anticipation for the upcoming G20 summit in Argentina drove investors away from safe haven currencies like the US Dollar.
Speculation that US President Donald Trump and China President Xi Jinping could reach some kind of breakthrough in long-lasting US-China trade tensions at the G20 summit made investors more willing to take risks throughout the week.
This led to US Dollar weakness, but the currency’s strength was further limited by unexpected caution from the Federal Reserve.
After previously hinting that US interest rates were still well below neutral, Fed Chairman Jerome Powell indicated in a speech this week that the rate was ‘just below’ neutral and would likely not rise much above it.
His comments weighed on Fed interest rate hike bets, and left markets speculating that the Fed may be closer to the end of its rate hike cycle than expected. This caused US Dollar losses on Wednesday evening.
As for what’s next, the Euro to US Dollar exchange rate is highly likely to react to the events of the G20 summit from Friday evening onwards.
When markets open on Monday, the Euro and US Dollar are both likely to move based on weekend outcomes and reaction to the G20 meeting, especially any potential developments in US-China trade tensions.
Any hints of de-escalation in trade jitters would make investors even more willing to take risks, which would cause US Dollar weakness and help the Euro to advance further.
The opposite is also true though. If US-China trade tensions worsen instead, the US Dollar is likely to surge and EUR/USD will reverse most of its recent gains.
Multiple notable Eurozone and US ecostats will be published throughout the week, which may also influence EUR/USD movement if it surprises.
Eurozone and US manufacturing PMI data for November will be published on Monday, followed by non-manufacturing PMI data on Wednesday.
Eurozone retail sales and US employment data from ADP will be published on Wednesday too, with German and US factory orders stats following on Thursday.
Friday may be the most influential session of the week however, with Eurozone Gross Domestic Product (GDP) growth starts, Eurozone employment change figures and key US Non-Farm Payroll data rounding off the week.
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Source: moneytransfer.co.uk