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EUR to USD Exchange Rate Slips from Highs as Eurozone Data Continues to Paint Uncertain Picture

October 31, 2019 - Written by Toni Johnson

While the Euro to US Dollar (EUR/USD) exchange rate has seen notable gains this week so far, the pair has slipped from its best levels today as investors are hesitant to keep buying the Euro amid a lack of strong domestic support. Still, the primary movement in the pair since last night has been a strong gain in response to the Federal Reserve’s uncertain tone on the US monetary policy outlook.

Since opening this week at the level of 1.1080, EUR/USD has been trending higher each day. EUR/USD saw a jump in demand last night in response to Federal Reserve news, and this morning the pair touched on a weekly high of 1.1173.

This was the best level for EUR/USD since last weekend and meant the pair had recovered last week’s losses. However, at the time of writing EUR/USD is trending a little lower again near the level of 1.1150, due to a lack of solid support for the Euro.

EUR Exchange Rates Fail to Find Domestic Support amid Mixed Eurozone Data

Investors bought the Euro against the US Dollar last night, but this was largely due to US Dollar weakness.

As the Euro and US Dollar share a negative correlation, the Euro often benefits from US Dollar weakness leaving the Euro as one of the benefactors of last night’s uncertain Federal Reserve policy decision.

The Euro did see a little fresh support this morning, as Italian and Eurozone growth rate figures came in slightly stronger than expected.

Rather than slowing to 0.1% as expected, the Eurozone’s growth rate remained at 0.2% quarter-on-quarter, which slightly softened fears that the Eurozone could see an overall contraction.

Still, despite this, the day’s other Eurozone data has been less impressive. German retail sales fell short of expectations and Eurozone unemployment unexpectedly rose. These figures meant that the Euro was unable to hold weekly highs against the US Dollar.

According to Jamie Rush, Economist at Bloomberg:

‘Growth came in slightly above expectations today, but remains a long way below trend for the Eurozone. If that continues, inflation will change course and the ECB will see its target slip beyond reach. Survey indicators suggest a rebound in the fourth quarter is unlikely, although as uncertainty about Brexit and trade recedes, some stability should return in 2020’

USD Exchange Rates Tumbled after Federal Reserve’s Mixed Tone

During Wednesday evening’s October Federal Reserve policy decision, the Fed cut US interest rates for the third time since July as expected.

Pleasing bullish investors, the bank also indicated that further action on US monetary policy could be paused. This lack of signals for further imminent rate cuts caused bets of another Fed interest rate cut this year to soften.

However, the lack of solid signals was overall seen as a lack of hawkishness from the bank, which led to overnight US Dollar weakness.

The Fed stopped short of outright signalling that its rate cut cycle would be paused, potentially leaving the door open for more rate cuts in the next half a year. According to a note from Bloomberg economists:

‘The October FOMC post-meeting communique proffered the possibility of additional policy easing, but dialed back the degree of certainty through subtle language changes. This is consistent with Bloomberg Economics’ expectation that officials would aim to preserve optionality around upcoming meetings, even though we expect tepid economic data to ultimately compel the Fed to act.’

Today’s US Personal Consumption Expenditure (PCE) data fell short of expectations. Amid fresh signs of weakness in US inflation, Fed rate cut speculation is likely to persist and keep pressure on the US Dollar.

EUR/USD Exchange Rate Forecast: US Non-Farm Payrolls Could Influence Fed Bets

With the Euro outlook still being weighed by a lack of supportive Eurozone data lately, the Euro to US Dollar exchange rate’s recent gains have been more due to US Dollar weakness.

This sort of movement is likely to continue as well. Most of this week’s most influential Eurozone ecostats have already been published, leaving investors to react to upcoming US data tomorrow.

Some of the week’s most influential US ecostats, the US Non-Farm Payroll report for October, will be published during tomorrow’s American session.

As the Non-Farm Payroll report is closely watched by the Federal Reserve, a weaker than expected US jobs report could lead to fresh Fed rate cut bets and help EUR/USD to sustain gains.

US manufacturing PMI data from ISM could also prove influential, and looking ahead to next week the Euro to US Dollar exchange rate could be driven by upcoming German and Eurozone PMI data.
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