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EUR to USD Exchange Rate Nears Multi-Year Highs as US Data Fails to Support US Dollar

February 15, 2018 - Written by David Woodsmith

Strong Eurozone data and rising market expectations for global growth to improve in 2018 and beyond has left the Euro to US Dollar (EUR/USD) exchange rate an appealing buy. Investors are brushing over strong US data due to bets of increasingly sturdy global growth.

Despite falling from 1.2460 to 1.2251 last week amid a resurgent US Dollar, EUR/USD has seemingly already recovered all those losses. If EUR/USD is able to hold its weekly gains on Friday, the pair could end the week near its current highs of 1.2501 – close to the three-year-high of 1.2516 seen at the beginning of the month.

EUR Supported by French Unemployment Results

Demand for the Euro was sturdy throughout Thursday trade, thanks to the latest optimistic data from the Eurozone.

Thursday morning saw the publication of the latest unemployment data from The Netherlands and France.

The Netherlands’ unemployment rate improved from 4.4% to 4.2% in January, while France’s unemployment rate saw a major improvement from 9.6% to 8.9% in Q4 2017.

This marked the first time since 2009 that the French unemployment rate had been below 9%. While analysts remain concerned about the skill mismatch in France’s job market the news was still optimistic.

Some suggested it added weight to French President Emmanuel Macron’s efforts to improve the labour market. Others, such as Diego Iscaro from IHS Markit, believe it is too soon to judge the impact of Macron’s reform plans;

‘I think it’s too soon to say that Macron’s reforms are having a positive impact, but it’s clear that stronger activity and a more positive business environment are boosting employment,’

Thursday’s Spanish inflation report from January beat expectations slightly, adding further support to Euro trade. The figure was projected to come in at 0.5% year-on-year but instead came in at 0.6%.

USD Weakened as Global Growth Outlook Rises

On top of solid Eurozone data, the Euro simply benefitted from a weaker US Dollar.

The US Dollar has been unappealing to investors in recent sessions amid market expectations that the global growth outlook is rising. This is despite higher market expectations that the Federal Reserve will hike US interest rates at least three times in 2018.

As a ‘safe haven’, the US Dollar is much more appealing across the globe in times of global economic uncertainty.

However, with many major central banks looking to begin tightening monetary policy in 2018 and beyond and growth in non-US economies improving, the US Dollar’s appeal as a safe haven is waning.

As a result of the higher global growth outlook, the US Dollar failed to benefit from the latest US data. This was despite US data being generally optimistic.

January’s yearly US PPI results beat expectations, showing more signs of stronger inflation in the US. US industrial production rose year-on-year in January too.

However, the Empire manufacturing PMI which was forecast to come in at 17.5 unexpectedly slipped to 13.10. Wednesday’s US retail sales results were also disappointing.

EUR/USD Forecast: Eurozone and US Confidence Stats Due over Next Week

Confidence data from the US and the Eurozone could impact the Euro to US Dollar exchange rate in the coming sessions.

The Euro is likely to remain sturdy until the end of this week and could even end the week near its multi-year highs against the US Dollar, amid a lack of influential Eurozone ecostats due for publication on Friday.

However, if the US Dollar sees a boost in demand on Friday it could limit EUR/USD gains. Friday’s American session will see the publication of Michigan University’s February consumer confidence projections, as well as US building permits and housing starts from January.

Next week’s US economic calendar will be a little quieter but the Euro is more likely to take point in EUR/USD movement regardless.

Tuesday will see the publication of Germany’s GfK consumer confidence and ZEW’s economic sentiment index surveys, as well as the Eurozone’s February consumer confidence projection.

Markit will publish its February PMI projections for the Eurozone and US on Wednesday. The Eurozone figures are more likely to be influential.
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