Euro US Dollar (EUR/USD) Exchange Rate Sluggish as US Treasury Yields Break Psychological Barrier
An unexpected uptick in April’s US consumer confidence index left the Euro to US Dollar (EUR/USD) exchange rate on a weaker footing, with the US economy continuing to demonstrate signs of strength.
US Dollar (USD) exchange rates found an additional boost on Tuesday as the 10-year US Treasury yield rose above three percent for the first time in more than four years, surpassing a psychologically significant barrier.
With markets confident that the Federal Reserve is likely to take a more aggressive approach to monetary tightening over the coming months the downside potential of the US Dollar was limited.
Although the Richmond Fed manufacturing index fell markedly short of forecast, sliding from 15 to -3 in April, this was not enough to offer the EUR/USD exchange rate any particular support.
Dovish ECB Meeting to Weigh on Euro US Dollar (EUR/USD) Exchange Rate
Anticipation ahead of Thursday’s European Central Bank (ECB) policy meeting is likely to keep the Euro to US Dollar (EUR/USD) exchange rate under pressure in the near term.
Markets anticipate another dovish performance from ECB President Mario Draghi, particularly in the wake of recent weaker Eurozone data.
If Draghi continues to talk down the prospect of any move towards a more hawkish policy outlook the strength of Euro (EUR) exchange rates is likely to diminish significantly.
As the Barclays Research Team noted:
‘We think that it will need to recognize that the activity data releases have weakened, the geopolitical risks remain elevated, and the March inflation data did not deliver positive surprises. For these reasons, we think the statement will probably sound slightly more cautious and the balance of risk a bit less upbeat than in March.
‘All of these factors, in our view, will continue to support the view of a majority of governing council members of a very gradual approach to removing the unconventional monetary policy measures.’
As long as the ECB looks set to leave its long-running quantitative easing programme in place for longer the EUR/USD exchange rate may struggle to find any particular traction.
EUR/USD Exchange Rate Recovery Forecast on Weaker First Quarter US GDP
The Euro to US Dollar (EUR/USD) exchange rate could find a rallying point ahead of the weekend, though, on the back of the latest US gross domestic product data.
Forecasts point towards a loss of momentum in the first quarter annualised GDP, with growth thought to have eased from 2.9% to 2.0%.
While this is still a solid pace of growth any signs of softening within the US economy could encourage investors to sell out of the US Dollar (USD) once again.
Even so, anything short of a significant downside disappointment is unlikely to alter the odds of the Federal Reserve raising interest rates up to three more times before the end of 2018.
Any bearishness in the latest ECB survey of professional forecasters, meanwhile, could put additional pressure on the Euro to US Dollar (EUR/USD) exchange rate.