Euro to Dollar Exchange Rate Outlook - EUR/USD Higher on Below Forecast US Data

July 17, 2014 - Written by Tim Boyer

STORY LINK Euro to Dollar Exchange Rate Outlook - EUR/USD Higher on Below Forecast US Data

Having been held in check by the release of mixed economic data, the Euro to Dollar (EUR/USD) exchange rate edged higher on Friday to finish the weekly session at 1.35249.

Earlier in the week, a report showed that construction across the 18 member Eurozone declined in May, adding to signs that the region’s economy is faltering. According to the European Union statistics agency Eurostat, construction output declined from April’s year-on-year construction output figure of 8% to 3.5% in May.

The largest decreases in production in construction were observed in Germany (-4.9%), Poland (-3.9%), Slovenia (-3.7%) and the Czech Republic (-3.6%), while increases were registered in Hungary (+2.3%), Bulgaria (+1.7%), Slovakia (+1.6%) and Spain (+1.0%).

Some economists are blaming the mild winter for the poor result as a warmer winter period would allow more construction to occur earlier in the year.

A separate report which showed that the annual rate of inflation across the Eurozone remained unchanged at 0.5% last month prevented the currency from weakening further. The data matched economist forecasts and was seen as easing some of the pressure on the European Central Bank to introduce further monetary easing measures.

The figure highlights the ninth consecutive month where inflation has been below 1%. The figure remains deep in the danger zone area and well below the ECB’s target rate of 2%. The only Eurozone member to see inflation close to that target was Austria with 1.7%.

Core inflation, which strips out the more volatile elements of energy, food, alcohol and tobacco, however edged up to 0.8% in the year to June, from 0.7% a month earlier. The rise is likely to ease fears that the currency bloc is entering a deflationary cycle.

Euro Recovers Ground vs Pound Sterling

The Euro to Pound (EUR/GBP) exchange rate managed to regain some ground after the UK currency was weakened by comments that sentiment towards Sterling could be knocked as Scotland’s referendum vote draws nearer.

“The market’s attention to the referendum is growing and will continue to grow as we head into September. Our base case is that they don’t vote for independence but the risk in the run up to the vote and the potential uncertainty around the actual vote will boost sterling volatility,” said a London based senior global-currency strategist.

The referendum vote takes place on September 18th, the 700th anniversary of the battle of Bannokburn the battle which saw Robert the Bruce defeat the English army of Edward the second and was the decisive victory in Scotland’s war of independence.

The US Dollar (USD) meanwhile was mixed against its peers as one report showed that labour market in the world’s largest economy is showing further signs of recovery. According to the Washington based Labour Department the number of American filing for unemployment benefits fell by 3,000 to 302,000 last week. The figure was better than the 310,000 forecast by economists.

The positive claimants data was offset somewhat by the release of a separate report which showed that the number of new homes built in the US tumbled by 9.3% last month to a year on year rate of 893,000, down from the previous figure of 985,000. Economists had been expecting a rise of 0.9% to 1.018 million.

The ‘Greenback’ did find some support from safe haven demand as new sanctions imposed by the USA on Russia raised concerns over the potential impacts upon the global economy.

EUR/USD Update Today - 18/07/2014

The Euro exchange rates (EUR) fell sharply on Friday as concerns over the conflict in Ukraine were heightened by the crash of Malaysian flight 17 in the east of the country.

The single currency came under further pressure after a report showed that the Eurozone’s current account surplus fell by €10 billion in May. The US Dollar (USD) also fell but uncertainty as to the cause of the crash prevent a further decline.

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