Euro US Dollar Exchange Rate Falters as German Trade Surplus Narrows
A sharp narrowing of the German trade surplus in April left the Euro to US Dollar (EUR/USD) exchange rate on a weaker footing.
Investors were not impressed to find that export volumes had contracted -0.3% on the month, highlighting a persistent loss of momentum within the Eurozone’s powerhouse economy.
April’s industrial production data also proved discouraging, as output unexpectedly slumped -1.0% on the month.
Coupled with Thursday’s disappointing German factory orders data this all suggests that Germany may struggle to find a rebound in growth in the second quarter.
This gave investors little incentive to favour the Euro (EUR) ahead of the weekend, especially as the general sense of market risk aversion picked up in anticipation of developments at the latest G7 summit.
Rising Global Trade Tensions Weigh Heavily on EUR/USD Exchange Rate
While US consumer credit data fell significantly short of forecast overnight this was not enough to shore up the Euro to US Dollar (EUR/USD) exchange rate.
The mixed natures of recent US data has failed to particularly weigh on US Dollar (USD) exchange rates, which remain well supported by expectations of an imminent Federal Reserve interest rate hike.
With the Fed looking set to pursue a more aggressive pace of monetary tightening over the coming months the downside potential of the US Dollar remains limited.
Increasing global tensions over trade are likely to offer additional support to USD exchange rates, meanwhile, as the US administration continues its more combative and protectionist rhetoric.
Euro US Dollar (EUR/USD) Exchange Rate Volatility Forecast Ahead of ECB Decision
Further volatility is in store for the Euro to US Dollar (EUR/USD) exchange rate next week as markets brace for the European Central Bank’s (ECB) June policy meeting.
After hawkish comments from ECB chief economist Peter Praet there are hopes that the central bank could shift towards a monetary tightening bias.
Signs of greater confidence from policymakers at the meeting could see the Euro trending higher across the board, even though concerns over the underlying health of the Eurozone economy remain.
However, if the ECB fails to show any signs of returning to a more hawkish policy outlook in the near term the EUR/USD exchange rate could slump sharply.
Analysts at TDS commented:
‘Draghi will need to strike a delicate tone in still expressing enough confidence in the recovery to justify an eventual end to QE, while acknowledging growing downside risks to the outlook.
‘We believe that the ECB will delay the decision on QE post-September to the July meeting, much like the ECB did last year in discussing various scenarios in September, but not announcing its final decision on QE until October.’
A more dovish performance from ECB President Mario Draghi may leave the Euro to US Dollar (EUR/USD) exchange rate on a downtrend.