Euro US Dollar (EUR/USD) Exchange Rate Benefits From Underwhelming US Inflation Data
Ahead of the weekend the Euro to US Dollar (EUR/USD) exchange rate recovered ground in the wake of Thursday’s mixed raft of US consumer price index data.
Confidence in the US Dollar (USD) weakened as April’s CPI figures failed to strengthen across the board as forecast, suggesting that domestic inflationary pressure is weaker than anticipated.
While this is not the Federal Reserve’s preferred measure of inflation this softness left USD exchange rates on a generally weaker footing, with policymakers still likely to be discouraged by the data.
As analysts at Deutsche Bank commented:
‘The details of the data showed that weakness was fairly broad based across core goods and core services with the biggest declines coming in airfares and car inflation. It’s worth noting that following the average hourly earnings miss in last week’s payrolls report, that now means that we’ve had two softer than expected US inflation prints in close succession.’
After a week of strong gains, and with global geopolitical jitters easing, the appeal of the US Dollar naturally diminished.
EUR/USD Exchange Rate Weakness Forecast as Eurozone Economic Growth Slows
Further downside pressure may be in store for the Euro to US Dollar (EUR/USD) exchange rate in the coming week, however, with the release of the first quarter German and Eurozone gross domestic product data.
Evidence that the currency union lost some of its economic momentum in the first three months of 2018 could weigh heavily on Euro (EUR) exchange rates.
Forecasts point towards a moderate dip in both the German and Eurozone figures, suggesting that any slowing is broad-based rather than a temporary blip.
This is likely to encourage the European Central Bank (ECB) to leave monetary policy on hold for the foreseeable future, pushing back the prospect of the quantitative easing programme being wound down.
However, if the growth figures surprise to the upside this could spur the EUR/USD exchange rate to sharply extend its gains and reverse its recent bearish trend.
US Protectionism Worries Forecast to Limit Euro US Dollar (EUR/USD) Exchange Rate Upside
While US data is a little thinner on the ground next week the Euro to US Dollar (EUR/USD) exchange rate could still see some fresh weakness.
An uptick in Tuesday’s advance retail sales figures may prompt investors to pile back into the US Dollar once again.
As long as signs point towards a more resilient US economy the mood of USD exchange rates is likely to remain more bullish in nature.
Political developments could provoke further jitters for the EUR/USD exchange rate in the near term as the EU continues to push for a permanent exemption to US steel and aluminium tariffs.
Fresh signs of protectionism from the Trump administration may encourage a resurgence in market risk aversion, to the benefit of the safe-haven US Dollar.
Any increase in geopolitical tensions is likely to leave the Euro to US Dollar (EUR/USD) exchange rate on a weaker footing.