Underwhelming Eurozone Inflation Limits Euro US Dollar (EUR/USD) Exchange Rate Uptrend

Euro US Dollar (EUR/USD) Exchange Rate Loses Momentum on Lacklustre Eurozone Inflation

With signs continuing to point towards a weaker level of inflationary pressure within the Eurozone the Euro to US Dollar (EUR/USD) exchange rate was unable to maintain a positive footing ahead of the weekend.

Spain’s consumer price index showed a sharp contraction on the month in January, further undermining the appeal of the Euro (EUR).

With the German wholesale price index also failing to offer any significant improvement on Friday morning the EUR/USD exchange rate struggled to find any fresh traction.

Comments from European Central Bank (ECB) board member Benoît Cœuré did little to boost the mood of investors, with the policymaker maintaining a generally cautious view on the subject of interest rates.

As Cœuré gave little indication that the ECB is planning to reassess its approach to monetary policy any time soon this left the Euro lacking in support.

Worries over US Economic Outlook Limit US Dollar (USD) Exchange Rate Strength

Confidence in the US Dollar (USD) remains rather fragile, however, limiting the vulnerability of the EUR/USD exchange rate in the near term.

Given that markets have already effectively priced in the impact of an imminent Federal Reserve interest rate hike the upside potential of USD exchange rates has been largely restricted.

Recent signs from the US economy have not been overly encouraging either, with Thursday’s industrial production and capacity utilisation figures proving particularly disappointing.

Worries over the outlook of the world’s largest economy helped to shore up the EUR/USD exchange rate over the course of the week, with investors nervous about the nature of the Trump administration’s proposed budget plan.

With global stock markets recovering ground the appeal of the safe-haven US Dollar has eased, generally returning USD exchange rates to more bearish territory.

This afternoon’s raft of US housing data and the latest University of Michigan sentiment index could see the US Dollar come under renewed pressure, with any disappointment likely to boost the EUR/USD exchange rate.

Solid Eurozone Confidence Indexes Forecast to Boost Euro (EUR) Demand

In the coming week the latest raft of Eurozone consumer and business sentiment surveys could provoke fresh volatility for the EUR/USD exchange rate.

Further signs of improved confidence within the currency union may well help to shore up the Euro once again, even though none of this is likely to materially alter the outlook of the ECB.

Speculation over the future of the German coalition government also looks set to drive some movement on EUR exchange rates in the coming days, with investors waiting to find out whether SPD members will vote to approve the deal with Angela Merkel’s CDU/CSU.

Confirmation that Eurozone inflation dipped slightly in January may weigh heavily on the EUR/USD exchange rate, though.

Hannah Wilson

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