June 27, 2019 - Written by Minesh Chaudhari
STORY LINK EUR to USD Exchange Rate Avoids Major Losses despite US Dollar’s Pre-G20 Rebound
While some investors have been buying the US Dollar back from its lows this week, supported by US-China trade hopes and speculation that the Federal Reserve may become less dovish than previously thought, the Euro to US Dollar (EUR/USD) exchange rate has avoided significant losses. This has been due to overall US Dollar weakness, as well as some fresh signs of resilience in Eurozone inflation figures.
Since opening this week at the level of 1.1393, EUR/USD has been fluctuating in a relatively tight region, between lows of 1.1351 and Tuesday’s high of 1.1409. This high was also the best EUR/USD level for a quarter – since March.
At the time of writing on Thursday afternoon, EUR/USD was trending below the week’s opening levels near the level of 1.1362. However, EUR/USD was still trending well above last week’s opening levels of 1.1215 – showing that the pair was sustaining most of its strength despite the US Dollar’s attempts at rebounding.
EUR Exchange Rates Resilient on Latest Eurozone Data despite Weakness on Trade Jitters
The Euro and Eurozone outlooks remain highly mixed, but despite this the Euro has been able to avoid significant losses versus a rebounding US Dollar this week.
Investors have been buying the US Dollar back from its worst levels in profit taking ahead of key geopolitical meetings at the weekend’s key G20 Summit.
While this would typically weaken the Euro, which has a negative correlation with the US Dollar, the Euro has been able to hold its ground.
This has been due to numerous factors, including the US Dollar’s strength being fairly limited, as well as some stronger than expected Eurozone data supporting the shared currency’s appeal.
In particular, yesterday’s German Consumer Price Index (CPI) inflation rate report beat expectations in some key prints. Inflation unexpectedly rose from 0.2% to 0.3% in June’s monthly projections, rather than slowing to the expected 0.1%.
The yearly projection was expected to remain at 1.4%, but surprised investors by rising to 1.6%.
However, according to Carsten Brzeski, Chief Economist at ING Germany, there was little to celebrate in these results either:
‘If Germany was the entire Eurozone, this week’s data of weakening economic sentiment and stable but low inflation would have strengthened the European Central Bank's case for additional easing.’
As a result of this and this morning’s weaker than expected Eurozone confidence results, investors were hesitant to buy the Euro much higher, making it easier for the US Dollar to keep EUR/USD below the week’s opening levels.
USD Exchange Rates Rebounding Ahead of G20 Summit
With world leaders currently arriving in Osaka, Japan for the weekend’s 2019 G20 Summit, US Dollar investors have been buying the US Dollar back from its recent lows in profit-taking.
The US Dollar has tumbled in recent weeks as Federal Reserve
interest rate cut bets rise and investors become more concerned about US trade and geopolitical tensions.
Hopes for some of those tensions to see positive developments or resolutions during the G20 Summit has supported the US Dollar today.
The US currency is also benefitting from speculation that the Federal Reserve may not become as dovish on US monetary policy as some speculate.
However, overall investors remain anxious and the US Dollar’s potential for gains is limited. Federal Reserve interest rate cut bets remain high, and the latest US data has failed to be particularly impressive.
US manufacturing, housing and goods data earlier in the week was largely disappointing, and yesterday’s key US growth rate results simply met forecasts.
US geopolitical tensions remain a major concern for the US economic outlook, making the upcoming G20 meetings even more significant. According to Mark Zandi, Chief Economist at Moody’s Analytics:
‘I think we are on the razor's edge here,
The real threat now is an expanding trade war which would push growth below potential and result in unemployment starting to rise.’
EUR/USD Exchange Rate Forecast: Major Data and G20 Summit in Focus
After what has been a generally uneventful week for Euro to US Dollar exchange rate movement, Friday’s session could be highly significant for both the Euro and US Dollar.
Some of the week’s most influential Eurozone and US data will be published throughout the day.
The Eurozone’s June inflation projections, for example, could be the week’s most influential data for EUR/USD if it surprises investors.
If Eurozone inflation beats expectations, it could soften market expectations for a more dovish European Central Bank (ECB). Weaker inflation data would have the opposite effect.
The day’s upcoming US Personal Consumption Expenditure (PCE) inflation data could also prove influential if it surprises investors.
However, any trade or geopolitical developments from the G20 Summit, which officially begins on Friday, could be even more influential for the US Dollar’s outlook.
If US trade or geopolitical relations show any sign of improvement, the US economic outlook could improve too, which may also cause Federal Reserve interest rate cut bets to lighten and the Euro to US Dollar exchange rate to see more solid losses.
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TAGS: American Dollar Forecasts Euro Forecasts