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Euro US Dollar (EUR/USD) Exchange Rate Benefits from Signs of US Stagnation

September 19, 2019 - Written by John Cameron

Stagnant US Growth Encourages Euro US Dollar (EUR/USD) Exchange Rate Gains

A surprise stagnation from August’s CB leading index helped to fuel Euro to US Dollar (EUR/USD) exchange rate gains on Thursday.

This weaker showing points towards the US economy continuing to lose momentum in the third quarter, raising the risk of an underwhelming gross domestic product reading.

As the Philadelphia Fed manufacturing index also showed a decline on the month investors saw limited cause for confidence in the economic outlook, weighing heavily on the US Dollar.

Although July’s existing home sales figures showed a solid improvement this failed to shore up USD exchange rates.

Widened Eurozone Current Account Surplus Boosts Euro (EUR) Demand

The appeal of the Euro, meanwhile, improved on the back of July’s better-than-expected Eurozone current account surplus.

As the surplus widened from 23.1 billion to 29.8 billion this encouraged hopes that the Eurozone economy is proving more resilient to global trade tensions than previously thought.

Even though the European Central Bank’s (ECB) restarted quantitative easing programme got off to a poor start, with fresh cheap loans seeing a limited uptake from banks, the EUR/USD exchange rate remained on a positive footing.

However, if markets see an increased risk of the ECB enacting further monetary loosening in the wake of this poor start the mood towards the Euro could sour.

Signs of Weaker German Inflation Forecast to Dent EUR/USD Exchange Rate

With forecasts pointing towards a weakening in August’s German producer price index figures the EUR/USD exchange rate could face further pressure.

Fresh evidence that inflationary pressure within the Eurozone’s powerhouse economy is failing to pick up would further increase the odds of more ECB loosening.

Unless price pressures can show signs of picking up on the month the Euro looks set to shed ground ahead of the weekend.

Even so, an improvement from September’s Eurozone consumer confidence index may offer the EUR/USD exchange rate a fresh rallying point.

US Dollar (USD) Vulnerable Ahead of Further Fed Policymaker Comments

Additional commentary from Federal Reserve policymakers could see the US Dollar fall further out of favour, meanwhile.

After the Federal Open Market Committee’s (FOMC) September meeting showed an increased divide among policymakers investors are looking for signs as to where interest rates may go next.

If speakers suggest a greater willingness to cut interest rates further in the coming months this could fuel a fresh sell-off for the US Dollar.

On the other hand, signs of hawkishness may help USD exchange rates to return to a positive footing ahead of the weekend.
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