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Euro US Dollar Exchange Rate Rallies as German Exports Show Surprise Growth

February 9, 2021 - Written by Frank Davies

Euro US Dollar Exchange Rate Shakes off Narrowed German Trade Surplus

A sharper-than-expected narrowing of the German trade surplus was not enough to knock the Euro to US Dollar (EUR/USD) exchange rate off its positive footing.

Even though the headline trade surplus narrowed from €16.7 billion to €14.8 billion this failed to put the Euro on the back foot against its rivals.

Investors instead took encouragement from the details of the trade data, which showed a modest 0.1% monthly uptick in export volumes.

This defied forecasts of a fresh -1% decline in exports during December, suggesting a stronger trade performance from the Eurozone’s powerhouse economy.

The mood towards the US Dollar, meanwhile, soured in response to the NFIB business optimism index’s failure to improve in January.

US Dollar Under Pressure as Business Confidence Slips

As the index slipped from 95.6 to 95 this suggests that US businesses took a slightly less positive outlook at the start of 2021, pointing towards greater anxiety over the economic outlook.

This naturally weighed on demand for the US Dollar, with markets wary of the potential for the world’s largest economy to underperform in the first quarter.

However, demand for the US Dollar may recover on Wednesday with the release of January’s inflation data.

Forecasts point towards the headline inflation rate picking up from 1.4% to 1.5% on the year, an improvement which could give the Federal Reserve greater cause for confidence.

As long as investors see reason to bet that the Fed could hold off on fresh monetary stimulus measures for longer the US Dollar could push higher across the board.

On the other hand, if inflation fails to improve as anticipated this could offer the EUR/USD exchange rate another boost.

Euro Looks to Benefit from Positive German Inflation Rate

Confirmation that German inflation returned to positive territory in January’s finalised reading may encourage further Euro buying.

As long as the final reading sees no downward revision this should offer EUR exchange rates further support on Wednesday.

However, the latest commentary from European Central Bank (ECB) President Christine Lagarde could put a dampener on the Euro.

If Lagarde expresses any degree of anxiety over the health of the Eurozone economy or raises the prospect of future monetary loosening the appeal of the single currency could weaken.

Even so, with forecasts pointing towards a recovery in the latest French industrial production data the Euro could still find cause for confidence in the days ahead.
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