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USD to EUR Exchange Rate Holding Near Best Levels despite Slowdown in US PCE Report

April 29, 2019 - Written by David Woodsmith

Despite today’s US data falling short of market expectations and even causing some fresh Federal Reserve interest rate cut speculation, the Eurozone’s data continued to come in weak as well and this has left US Dollar to Euro (USD/EUR) exchange rate movement mixed. For now, investors are anticipating Tuesday’s slew of major Eurozone ecostats and Wednesday’s Federal Reserve monetary policy decision.

Due to strong US ecostats and weak Eurozone ones, USD/EUR saw a solid jump in demand last week. After opening the week at the level of 0.8892, USD/EUR advanced and even briefly touched a high of 0.8890 – its best level in almost two years.

USD/EUR closed last week at the level of 0.8959, and continued to trend within a relatively narrow region near those levels throughout Monday’s European session.

USD Exchange Rates Fail to Extend Gains as US Data Causes Interest Rate Cut Speculation

Last week, investors piled into the US Dollar as data generally indicated that the US economy was resilient, despite continued signs of global economic slowdown.

This, as well as fresh global trade uncertainty, made the safe haven US Dollar one of last week’s most appealing major currencies. It was able to easily gain versus an unappealing Euro throughout the week.

However, while the headline US Gross Domestic Product (GDP) growth rate projection for Q1 beat expectations last Friday, other details of the report indicated that US inflation had slowed much more than expected.

Concerns of slowing US price pressures and lower inflation were exacerbated by today’s US Personal Consumption Expenditure (PCE) report, which disappointed in many key prints.

According to Andrew Hunter, from Capital Economics:

‘The surge in real personal spending in March suggests that consumption growth will be at least 3% annualised in the second quarter, after slowing sharply in the first quarter. But the Fed may be more concerned by the renewed weakness of core inflation, which slipped to only 1.6%...

That will reinforce the concerns of several officials that inflation is still too low to be consistent with the 2% target and, if we’re right in expecting activity growth to slow over the course of this year, makes it all the more likely that the Fed will be seriously contemplating interest rate cuts before too long.’

Due to the signs of weaker inflation in recent US ecostats, Fed interest rate cut bets have actually risen despite signs of strong growth elsewhere in the US economy. This is keeping the US Dollar from capitalising on Euro weakness.

EUR Exchange Rates Remain Weak as Eurozone Confidence Continues to Disappoint

While the US Dollar has been more weighed by Federal Reserve interest rate cut bets since the end of last week, the Euro has been unable to capitalise on this strength as Eurozone data continues to keep pressure on the shared currency as well.

Throughout last week, Eurozone confidence figures fell short and indicated that the bloc’s economic activity was unlikely to rebound from months of slowdown just yet.

Then, today’s Eurozone consumer and consumer confidence results from April largely fell short of expectations and left investors hesitant to buy the shared currency.

In particular, the business confidence, economic sentiment and industrial sentiment prints fell short of expectations and kept pressure on the Euro.

Despite this though, USD/EUR was unable to advance any further either. According to Maeva Cousin and David Powell from Bloomberg Economics, risks for the Eurozone economic outlook are still to the upside:

‘The 1Q GDP figures will be released tomorrow and provide a clearer picture of how the region’s economy has fared at the start of the year. We look for an expansion of 0.2% and, on balance, view the risks as skewed to the upside.’

USD/EUR Exchange Rate Forecast: Slew of Vital Eurozone Data in Focus

With the latest US data causing some investors to speculate that the Federal Reserve could cut US interest rates at some point this year, the Euro may be poised to push USD/EUR lower if upcoming Eurozone data impresses investors.

Tuesday will see the publication of a slew of key Eurozone ecostats that could cause a major shift in Euro movement if they surprise to the upside or downside.

The biggest datasets due tomorrow include German consumer confidence, unemployment and inflation data, French growth and inflation, and Eurozone unemployment and growth.

If many of these key ecostats beat expectations, investors will be more hopeful that the Eurozone’s economic activity is recovering from months of slowdown. This would cause USD/EUR to shed some recent gains.

On the other hand though, USD/EUR may near its best yearly levels again if the data continues to disappoint.

Some US data, including Q1 employment cost figures and March pending home sales, may also cause some US Dollar to Euro exchange rate movement tomorrow.
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