Euro to US Dollar Exchange Rate Recovers Slightly with Eurozone Inflation Above ECB Forecasts
Calmer market jitters as well as solid Eurozone data has helped the Euro to US Dollar (EUR/USD) exchange rate to recover from its worst levels this week, but the US Dollar (USD) remains resilient and appealing due to the strong US economic outlook.
Since EUR/USD opened at the level of 1.1413 on Monday, the pair has generally trended with a downside bias.
EUR/USD touched a one-year-low of 1.1304 on Wednesday, but at the time of writing on Friday had recovered to nearer the level of 1.1390.
Demand for the Euro (EUR) could continue to improve over the coming week if concerns about the Turkish Lira’s (TRY) potential impact on Eurozone banks and the Eurozone economy continue to lighten.
This may help the Euro to US Dollar exchange rate recover further from near its worst levels in a year.
Euro (EUR) Exchange Rates Supported by Eurozone Data and Calmer Market Mood
While not much of this week’s Eurozone data was particularly surprising, it has generally indicated that the Eurozone economy is still seeing resilient performance and in some ways stronger than economists had expected.
Following some stronger than forecast Eurozone Gross Domestic Product (GDP) growth projections earlier in the week and some stronger Eurozone economic sentiment too, Friday’s decent Eurozone inflation results weren’t particularly surprising.
The Eurozone’s final July Consumer Price Index (CPI) inflation rates were projected to have improved from 2.0% to 2.1% year-on-year, with the core yearly inflation rate projected to rise from 0.9% to 1.1%.
While monthly inflation did contract from 0.1% to -0.3% as economists expected, the yearly figures also met projections and confirmed that Eurozone inflation was currently running above the European Central Bank’s (ECB) targets.
The ECB target rate is 2%, so the overall inflation rate reaching 2.1% helped support the Euro.
On top of this, market concerns about the potential impact a Turkish Lira (TRY) crisis could have on the Eurozone economy faded in the middle of the week which also made the Euro more appealing again.
US Dollar (USD) Exchange Rates Slip as ‘Safe Haven’ Demand Lightens
The US Dollar has been highly appealing across the board over the last week, as the strong US economic outlook, bets of higher Federal Reserve interest rates and market demand for ‘safe havens’ have given investors plenty of reason to buy the US currency.
US data has continued to support the US Dollar’s appeal. This week has seen surprisingly strong US retail sales data from July, and impressive building permits stats.
July’s US housing starts and Philadelphia Fed manufacturing stats missing forecasts on Thursday didn’t have much negative impact on the US Dollar either with economic expectations still bullish overall.
However, the US Dollar wasn’t able to hold its best levels against the Euro as market demand for ‘safe haven’ currencies lightened in the second half of the week.
As markets became less concerned about the possibility of a Turkish Lira (TRY) crisis, they were less keen to hold on to ‘safe havens’ and the US Dollar slipped from its best levels.
Euro to US Dollar (EUR/USD) Forecast: Fed Minutes and Eurozone Growth Stats in Focus
Developments in politics and geopolitics are likely to remain a significant influence in the Euro to US Dollar (EUR/USD) exchange rate outlook over the coming weeks, but this week’s economic calendar has some noteworthy events on it too.
Monday’s session will be relatively quiet with German PPI and Eurozone construction output data due for publication, as well as a speech from Atlanta Fed President Raphael Bostic.
EUR/USD is more likely to be influenced by data in the second half of the week, as Wednesday’s American session will see the publication of US existing home sales and the Federal Reserve’s latest meeting minutes.
If the Fed maintains its hawkish outlook and shows no signs of being influenced by US protectionism, the US Dollar’s resilience is unlikely to change much next week.
The US Dollar would likely only weaken if the Fed outlook somehow worsened or if there was a broad risk-on rally.
The week’s most influential Eurozone data will be Thursday’s Eurozone PMI projections for August, which will give investors a better idea if how the Eurozone economy has performed this month.
Of course, any developments in Turkey or regarding US trade protectionism could also have an influence on the Euro to US Dollar (EUR/USD) exchange rate outlook next week.
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