Continuing to recover from the lows of previous weeks, the Euro to US Dollar (EUR/USD) exchange rate rallied before the weekend to hit 1.0977 in spite of lower-than-expected PMIs for the Eurozone.
Further gains were in store for the pairing as German IFO assessments released on Monday were positive across the board. Gauging the business sentiment of the nation, the current assessment index showed optimism beginning to return to the Eurozone by improving to 113.9 over the previous month’s 113.1 rather than falling as expected. This pushed the EUR/USD pairing rapidly up to 1.1098 from the morning’s opening of 1.1004.
A dismal result on the US Consumer Confidence figure, falling to 90.9 instead of the forecast gain to 100, indicated that concerns over still-worsening global markets have had more of an effect on the nation than had been previously assumed. Putting a dent in the bullish run of the ‘Greenback’ (USD) this sent the EUR/USD exchange rate trending upwards on Tuesday afternoon.
On-target Consumer Confidence for Germany on Wednesday had relatively little effect on the pairing in advance of the US Federal Open Market Committee (FOMC) interest rate announcement later that evening. As investors sought to position themselves against probable outcomes the exchange rate fluctuated throughout the day, moving from an early morning high of 1.1083 to a slump of 1.1010 just prior to the statement.
As the FOMC opted to hold interest rates steady at 0.25%, as anticipated, the greater impact came from comments indicating that a hike could come as soon as September and should almost certainly be expected before the year ends. Rather than giving the US Dollar quite the boost that had been predicted, however, the fact that the Fed’s wording seemed to be more hedging than decisive saw the rhetoric being branded dovish. Although the ‘Greenback’ was not overly softened by this turn in opinion the EUR/USD pairing initially dropped to 1.0971 and remained at the lowest levels of the week so far.
Meanwhile, Greece remained something of a sticking point for the Euro (EUR) even as bailout talks began in Athens yesterday. The revelation of former finance minister Yanis Varoufakis’ ‘Plan B’, involving the creation of a parallel banking system that could rapidly liquidate the Euro and replace it with the Drachma, was an evident cause for concern. Additionally threats of snap elections being called by Prime Minister Alexis Tsipras, should rebellious party members not fall into line, have only worsened the trepidation investors are beginning to feel once more regarding the future stability of the Hellenic nation and the common currency.
German unemployment figures did not provide the hoped for Euro rally this morning, with a rise of 9,000 instead of the expected fall of 5,000. Exposing weakness in the Eurozone’s strongest economy, this was the highest increase in joblessness since 2014. Equally lower-than-forecast, Germany’s Consumer Price Index saw inflation drop to 0.2%, which possibly indicates that the European Central Bank (ECB) may need to reconsider its current fiscal policy. In response the Euro has declined against rivals, bringing the EUR/USD pairing down to 1.0938.
Today’s GDP report for the US, while not quite as high as forecast, still marks a decided improvement upon the previous quarter, 2.3% over 0.6%. Proving that the nation’s economic health does in fact seem to be recovering, this could be the impetus that sees the FOMC raise interest rates in the nearer future.
Movement for the Euro to US Dollar exchange rate is likely to remain lively over the coming days, with the Consumer Price Index for the Eurozone due tomorrow along with the unemployment and inflation data. Further shortfalls could well push the Euro still lower, as may any further political or economic wobbles on the Greek front.