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EUR to USD Exchange Rate Fails to Sustain Week’s Best Levels as Fed News Causes USD Rebound

May 2, 2019 - Written by Toni Johnson

While the Euro to US Dollar (EUR/USD) exchange rate has climbed this week due to hopes for a Eurozone recovery, as well as signs of weakness in the US economic outlook has been unable to hold its best levels. Instead, the pair has been tumbling since the Federal Reserve took a less dovish stance than expected in its latest policy decision, and today’s Eurozone data wasn’t particularly impressive either.

Since opening this week at the level of 1.1160, EUR/USD has been trending higher thanks to US Dollar weakness. On Wednesday evening, EUR/USD briefly touched on a fortnight high of 1.1262 last night, but following the Federal Reserve policy decision the pair tumbled and trended closer to the level of 1.1182 at the time of writing today.

For the time being, the Euro to US Dollar exchange rate is still on track to sustain gains this week. However, if tomorrow’s Eurozone data disappoints as well, the Euro could quickly shed all of this week’s advance attempts.

EUR Exchange Rates Fail to Hold Advances as Eurozone Data Misses the Mark

Earlier in the week, the Euro was able to more easily hold gains versus a weakening US Dollar thanks to some surprisingly strong Eurozone data.

Among the most noteworthy figures were Eurozone growth projections and Germany’s latest inflation data, which both printed well above expectations and bolstered hopes that the Eurozone economy may be recovering from the recent economic slowdown.

However, while these stats supported the Euro, the shared currency’s bullishness was limited and the latest Eurozone data has kept investors uncertain about whether or not the Eurozone economy is recovering.

German retail sales unexpectedly contracted year on year according to this morning’s report, and Markit’s latest manufacturing PMI data showed that German manufacturing had contracted even deeper in April.

Chris Williamson, Chief Business Economist at Markit, said that there were encouraging signs, but they were not yet enough to indicate a rebound:

‘Some encouragement can be gained from the PMIs having risen in all four largest euro member states in April, and forward-looking indicators such as future expectations, new order inflows and the orders-to-inventory ratio having all come off their lows. But it remains too early to call a turning point, especially as future sentiment remains around its lowest level since the end of 2012, hinting that the manufacturing downturn will persist in the coming months.’

USD Exchange Rates Rebound as Federal Reserve Avoids Dovish Commentary

The US Dollar saw fairly bearish movement in the first half of the week, as US data continued to hint that the US economy may have been hit harder than expected by slowing global growth.

However, even as weaker US data caused Federal Reserve interest rate cut bets to rise, the Federal Reserve avoided taking a dovish tone in its May policy decision on Wednesday evening.

Instead, the Fed indicated that it would leave monetary policy frozen for an extended period of time, hesitant to signal that policy would move in either direction.

However, due to the optimism the bank showed despite disappointing US data, some analysts said the bank leaned a little towards hawkish. According to Joe Manimbo, Senior Market Analyst at Western Union Business Solutions in Washington:

‘The Dollar turned higher after Mr. Powell indicated that the forces weighing on inflation may prove temporary,

The chairman’s remarks skewed the Fed’s overall tone today as more hawkish than dovish.’

Following the Fed decision, the US Dollar strengthened. This afternoon’s stronger than expected US productivity and factory data further supported US Dollar demand.

EUR/USD Exchange Rate Forecast: Major Eurozone and US Data Due Tomorrow

Before markets wrap for the week, some of this week’s most influential Eurozone and US data will be published tomorrow and could cause some late-week movement in the Euro to US Dollar exchange rate.

The Eurozone’s April Consumer Price Index (CPI) inflation rate report will be published in the morning, and is expected to show that inflation rose since March.

Following Germany’s stronger inflation report earlier in the week, the Euro could see further losses and shed this week’s advance attempts if the overall Eurozone figure is weaker than expected.

Investors are also highly anticipating the afternoon’s US Non-Farm Payroll report.

This US job market dataset is typically influential for Federal Reserve monetary policy, so if the data impresses investors the US Dollar could see even further late-week strength.

On the other hand though, a disappointing Non-Farm Payroll report could worsen concerns about a US economic slowdown, and the Euro to US Dollar exchange rate could begin to climb again.
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