On Tuesday the Euro advanced by more than 0.8% against the US Dollar as markets ditched the safe-haven currency following the publication of a less-than-impressive US Advance Retail Sales report.
Prior to this, the Euro had been struggling against the ‘Greenback’ as concerns that Greece will default on its next payment to the International Monetary Fund (IMF) prevented the common currency from registering many gains.
At the beginning of the week the Euro to US Dollar (EUR/USD) exchange rate was trading in the region of 1.0527.
The Euro did receive a modest boost early in the European session as the Eurozone’s Industrial Production report showed a marked improvement. Production was up 1.1% on the month and 1.6% on the year, smashing forecasts for a monthly reading of 0.4% and an annual figure of 0.8%.
The common currency then extended these gains to achieve a high of 1.0692 in response to the US consumer spending report.
In the last Federal Open Market Committee (FOMC) gathering, policymakers stressed, once again, that positive US ecostats are prerequisite to higher borrowing costs.
Consequently, big-ticket releases (like employment, inflation and sales data) may directly influence whether interest rates are increased in June, September or even later in the year.
It was this thinking that saw the US Dollar plummet across the board after US retail sales were shown to have increased by 0.9% in March rather than the 1.1% expected. Retail sales less autos had been expected to print at 0.7% but actually came in at 0.4%.
Additionally, the US NFIB Small Business Optimism measure slid from 98.0 to 95.2 in March, defying predictions for a modest increase.
Also contributing to the EUR/USD uptrend was the International Monetary Fund’s (IMF) latest forecast, which intimated that the bullish US Dollar could be damaging the US economic recovery.
Further EUR/USD exchange rate movement can be expected to occur tomorrow as final German inflation figures are published and the European Central Bank (ECB) delivers its interest rate decision.
If the central bank stresses the positive impact quantitative easing is having on the Eurozone, the Euro could extend gains.
Of course, investors with an interest in the US Dollar to Euro (USD/EUR) exchange rate will also be looking ahead to Friday and the publication of US inflation data.
Economists are predicting a stagnant non-core inflation rate, but should the nation dip into deflation territory, the EUR/USD currency pair could end the week on a high.
That being said, the situation in Greece will continue to dictate the direction taken by the Euro to a certain extent. If it appears that the nation will fail to present a list of revised reforms to its creditors before the deadline, the Euro’s rally will probably prove short-lived.