Euro US Dollar (EUR/USD) Exchange Rate Tumbles on Market Concerns over the Bloc’s Largest Economy in Recession Warning
The Euro US Dollar (EUR/USD) exchange rate pared recent gains on Tuesday, falling as markets reacted to some rather disappointing ZEW economic sentiment surveys, both for the Euro Area and Germany, and news that an economic think-tank is warning of a possible looming recession in Germany.
According to the Dusseldorf-based Macroeconomic Policy Institute (IMK), the probability of a German recession in the next three months is now at 32.4%; 6.8% higher than it was in March.
This means that the institute’s indicator is now at ‘orange’, the middle range of the warning system, with recent domestic data releases for Germany including factory orders and business confidence proving largely disappointing.
The IMK stated:
‘Volatility in financial markets, which has been evident for several months, is now accompanied by a noticeable deterioration in sentiment and subdued production. This has recently become a typical constellation for the end phase of a cycle.’
This sudden downturn seems to contrast with the Bundesbank’s general economic outlook, however, with the bank still asserting that Germany’s economic good fortune will continue.
In other news, the Eurozone’s April ZEW economic sentiment survey plummeted from a score of 13.4 to a score of 1.9, the lowest reading since July 2016, whilst Germany’s ZEW reading fell to a staggering -8.2, further emphasising market pessimism among institutional investors.
US Dollar (USD) Exchange Rates Crawl Higher on Rate Hike Hopes and Easing Risk of Syria Conflict
The Euro US Dollar (EUR/USD) exchange rate encountered greater pressure today in the form of fresh appeal for the ‘Greenback’, with the situation in Syria following the missile strikes by the US, France and the UK seeming to de-escalate.
Markets are also staying close to the US Dollar (USD) on the hope that the US Federal Reserve will maintain its hawkish policy outlook.
This outlook could be reinforced or negated by today’s speeches by various Fed Presidents, with John Williams, Charles Evans, and Patrick Harker all due to speak.
Mr Williams is currently regarded as hawkish, whilst Harker is seen to be neutral and Evans is outright dovish.
If Harker is seen to be shifting towards the hawkish end of the spectrum then we could see even greater demand for the US Dollar, potentially putting the EUR/USD exchange rate under renewed pressure.
Euro US Dollar (EUR/USD) Exchange Rate Forecast: Eurozone Inflation and Nowotny Comments in the Spotlight
The Euro US Dollar (EUR/USD) exchange rate could see greater volatility tomorrow as markets assess the highly significant Eurozone consumer price inflation (CPI) release.
Analysts are currently expecting a climb in the monthly reading from 0.2% to 1.0%, whilst the yearly reading is forecast to hold at 1.4%.
If the monthly rise occurs then it would bode well for European Central Bank (ECB) hawks, particularly with recent comments from policymaker Ewald Nowotny, who asserted that the central bank could be pushed into winding down its extensive bond-buying programme by the end of this year.
Going later into the week; Thursday will feature the US jobless claims results as well as the Philadelphia Fed business outlook, with a drop in jobless claims capable of bolstering the ‘Greenback’ (USD).
All in all, the German recession warning is likely to keep pressure up on the Euro US Dollar (EUR/USD) exchange rate over the coming days, with markets looking out for any further signs that it may be true.