Euro to US Dollar Exchange Rate Forecast: EUR/USD Could Shed Weekly Gains if German Inflation Disappoints

Euro to US Dollar Exchange Rate Falls from Highs on Eurozone Inflation Concerns

Despite a lack of news supporting the US Dollar (USD) on Wednesday, the Euro to US Dollar (EUR/USD) exchange rate was unable to advance further as investors remained anxious Eurozone inflation was still too subdued.

After climbing slightly to the interbank level of $1.23 last week, EUR/USD saw sharp gains on Monday that took it to a monthly high of $1.24 on Tuesday morning.

The pair was then weakened by Eurozone data, and by Wednesday had dipped to the interbank level of $1.23 again.

Tuesday’s Spanish Consumer Price Index (CPI) projections worsened concerns that Eurozone inflation would not be sustained enough to support tighter monetary policy from the European Central Bank (ECB) any time soon.

Spain’s month-on-month inflation projection remained at 0.1%, rather than rising to the forecast 0.3%. The year-on-year figure only edged higher from 1.1% to 1.2% and missed the expected 1.5%.

Euro (EUR) traders are now anxious to see other inflation figures due later in the week.

Euro (EUR) Exchange Rates Pressured by Underwhelming Confidence Data

Tuesday also saw the publication of March’s final Eurozone confidence figures. While consumer confidence remained at 0.1 as projected in March, most other prints fell short of expectations.

Eurozone business confidence was expected to slip from 1.48 to 1.39 but instead fell to 1.34.

Industrial sentiment fell to 6.4, services sentiment to 16.3 and economic sentiment to 112.6.

The data indicated that Eurozone markets were concerned about the possibility that the Eurozone’s economy could be negatively impacted by a potential trade war.

Concerns that the Eurozone could be wrapped up in trade clashes against China worsened again on Wednesday when it was reported that the US President had spoken to French and German leaders about potential trade action against China.

While ‘trade war’ concerns weighed on the US Dollar too, investors were left with little reason to buy the Euro on Wednesday.

US Dollar (USD) Exchange Rates Unappealing on US Trade War Jitters

The US Dollar briefly saw stronger demand on Tuesday which helped it to recover slightly against the Euro. This was due to reports that the US and China had begun behind-the-scenes talks in hopes of avoiding a potential trade war.

However, the US Dollar’s strength on this news was brief, due to evening reports that the US President had spoken to French and German leaders about cooperative trade action against China.

On top of this, US Dollar investors are anxious over perceived chaos in the White House as top-level government roles are shuffled.

A lack of notable or supportive US data in recent sessions has given investors little reason to buy the US Dollar either, which has helped even a mixed Euro to sustain some gains against it.

Euro to US Dollar (EUR/USD) Forecast: Inflation and Central Bank Bets to Drive Movement

Major inflation stats will be published on Thursday which could influence late-week movement in the Euro to US Dollar (EUR/USD) exchange rate.

Among the releases, German Consumer Price Index (CPI) projections for March will be published. German inflation is expected to remain at 0.5% month-on-month but advance from 1.4% to 1.7% year-on-year.

If German inflation beats expectations, investors may be reassured that Eurozone inflation is improving which would boost European Central Bank (ECB) interest rate hike bets and the Euro’s strength.

On the other hand, if German, French and Italian inflation stats on Friday disappoint, the Euro to US Dollar exchange rate could shed most of its weekly gains.

US Personal Consumption Expenditure (PCE) data from February will be published on Thursday too. As PCE is the Federal Reserve’s preferred measure of US inflation, it could influence Fed rate hike bets and the US Dollar if it surprises investors.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard