Euro to US Dollar Exchange Rate Recovery Limited as US NFP Report Impresses
Updated 16:42 BST 01/06/2018:
The Euro to US Dollar (EUR/USD) exchange rate failed to hold its highs on Friday, as demand for the US Dollar improved towards the end of the day.
May’s highly anticipated US Non-Farm Payroll report beat expectations in most major prints, giving the US Dollar some stronger support before markets closed.
Despite this however, EUR/USD continued to trend above the week’s opening levels and could still be on track for its first week of gains in over six weeks.
[Published 08:42 BST 01/06/2018]
Euro to US Dollar Exchange Rate Sustains Gains as Italian Politics Take a Backseat
After a week of surging uncertainty in the Eurozone, Italy’s perceived political crisis seemingly came to an end on Friday, as a populist government appeared to have formed successfully. This helped the Euro to US Dollar (EUR/USD) exchange rate to hold a recovery.
EUR/USD has seen wide fluctuations this week. After opening the week at the level of 1.1657, EUR/USD briefly slumped to a low of 1.1521. This was the pair’s worst level in 10 months.
In the second half of the week though, Eurozone political jitters softened and the US Dollar (USD) was weakened by underwhelming US data. As a result, the US Dollar’s persistent rally came to an end and the Euro (EUR) recovered from lows.
On Friday, the Euro to US Dollar exchange rate trended just above the week’s opening levels. The pair could end the week near its weekly highs if upcoming US Non-Farm Payroll results disappoint investors.
Euro (EUR) Exchange Rate Demand Rises Despite US Trade War Fears
On Thursday evening, the US confirmed its intentions to put strict trade tariffs on US imports of goods from many allied nations – including those in the European Union.
EU leaders resoundingly criticised the tariffs, warnings that retaliation was likely if US President Donald Trump did not soften his stance. This worsened market concerns about the possibility of a US-sparked trade war.
However, the Euro remained sturdy against the US Dollar regardless towards the end of the week.
This has been due to news that Italy was not likely to hold another election this year after all – as the populist coalition appeared to secure a government plan that is likely to be sworn in.
The populist coalition of League and 5-Star Movement parties agreed to a revised set of ministers, after one of their picks was vetoed at the beginning of the week.
With their new coalition government plan looking to work, market uncertainty eased. As ‘Italexit’ was not a platform in the last election and support for the Euro is still strong in Italy, market bets of an ‘Italexit’ have faded too.
Euro support was also bolstered by Eurozone inflation, which is projected to have beaten forecasts in May.
US Dollar (USD) Exchange Rates Sold from Highs as US Growth Data Disappoints
Some investors perceived the US Dollar as having been overbought this week, and underwhelming US growth data made markets less willing to remain bullish on the currency.
Wednesday saw the publication of US Gross Domestic Product (GDP) projections for Q1, which fell short of forecasts. The quarter-on-quarter rate was forecast to have slowed from 2.9% to 2.3%, but instead slipped to just 2.2%.
This weighed on Federal Reserve interest rate hike bets, though the Fed is still expected to hike US interest rates at least twice more this year.
Thursday’s US news had little impact on the US currency. While April’s Personal Consumption Expenditure (PCE) data was solid, investors were hesitant to buy the US Dollar again following the growth slowdown, and ahead of Friday’s key US jobs report.
Euro to US Dollar (EUR/USD) Forecast: US Non-Farm Payrolls and Political Developments in Focus
Friday afternoon will see the publication of the latest US Non-Farm Payrolls report, which will give markets a better idea of how the US job market performed in the last month.
As US growth was slower than expected towards the beginning of the year, investors are hoping that the Non-Farm Payrolls will be strong enough to indicate that US economic activity is still strengthening in Q2.
May’s key US NFP print is forecast to have improved from 164k to around 189k, with unemployment forecast to remain at 3.9%. If the results beat expectations, the US Dollar could strengthen as Federal Reserve interest rate hike bets rise again.
Investors will also keep a close eye on the US average hourly earnings results. US wages are forecast to have improved in both monthly and yearly prints, to 0.2% and 2.7% respectively.
An impressive US job market report would make investors more confident about US economic strength, which would boost the US Dollar outlook in the mid-term too.
Still, analysts believe that with Eurozone jitters easing, the Euro to US Dollar (EUR/USD) exchange rate is still on track to sustain gains this week.
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