Euro to US Dollar Exchange Rate (EUR/USD) Slumps Following European Central Bank (ECB) Decision and Draghi Speech
Due to underwhelming Eurozone data and a cautious tone from the European Central Bank (ECB), the Euro to US Dollar (EUR/USD) exchange rate has slumped this week.
EUR/USD opened this week at the interbank level of $1.23. Although it edged higher at the beginning of the week it has been tumbling since Tuesday, and on Friday the pair slumped to $1.20 – its lowest level since early January.
Thursday’s big news was the European Central Bank’s (ECB) April policy decision, which was largely unsurprising but underwhelming enough to make the Euro (EUR) unappealing.
The bank left monetary policy untouched, as expected, but the Euro was ultimately sold in response to comments from ECB President Mario Draghi.
Draghi’s focus was on the moderation in growth the Eurozone economy has seen in recent months, rather than on the potential unfolding of the bank’s quantitative easing (QE) scheme or other monetary policies.
While Draghi did assert that Eurozone growth was still ‘solid’ and ‘broad-based’, his focus on slower growth rather than monetary policy weighed on the Euro.
Euro (EUR) Exchange Rate Continues Falls on Underwhelming Eurozone Data
Following Thursday’s cautious press conference from European Central Bank (ECB) President Mario Draghi, Friday’s underwhelming Eurozone data rounded the week off with some underwhelming stats.
France and Spain’s key Gross Domestic Product (GDP) projections for Q1 2018 fell short of forecasts in some prints.
French growth slowed from 0.7% to 0.3% quarter-on-quarter rather than the expected 0.4%, while Spanish growth came in at 2.9% year-on-year rather than the forecast 3%.
Some of Friday’s other Eurozone data was underwhelming too, with French inflation projected to remain at 1.6% in April rather than climbing to the forecast 1.7%. Similarly, Spain’s inflation projection slipped to 1.1% rather than printing at the expected 1.2%.
Germany’s April unemployment figure also fell by less than was hoped.
Overall, Friday’s Eurozone data continued to indicate that the Eurozone’s previously strong growth rates were slowing more quickly than expected.
US Dollar (USD) Exchange Rates Supported by US Economic Outlook
Over the past week, US Treasury 10-year bond yields have seen a strong performance – notably rising over the key 3% level for the first time since 2014.
The strong performance in bond yields has been the latest indication that investors expect firming US price pressures and Federal Reserve interest rates to rise.
This has supported the US Dollar, which has seen broad strength as it recovers from weeks of weakness on US political and trade uncertainties.
On top of optimism over US bond yields, the US Dollar has been supported by the latest solid US data.
Thursday saw the publication of March’s US durable goods orders and goods trade balance results, both of which beat forecasts.
Durable goods orders printed at 2.6% rather than sliding to the expected 1.6%. The goods trade balance was forecast to lighten slightly to $-74.8b, but instead came in at an even lighter $-68.04b.
Euro to US Dollar (EUR/USD) Forecast: Federal Reserve Decision Next Week Will Drive Movement
With markets seeming increasingly confident in the US economic outlook, next week’s US data and Federal Reserve policy decision could be hugely influential to the Euro to US Dollar (EUR/USD) exchange rate.
The Federal Reserve is not expected to make any changes to policy, but with 2018 coming up on its fifth month investors are anxious to see if the Fed can still ramp up its projected interest rate path for the year from three to four.
If the Fed does indeed hint that more US interest rate hikes are on the way, EUR/USD could see further losses in the coming week.
Of course, other key US data throughout the week could inspire the US Dollar too.
Personal Consumption Expenditure (PCE) data will be published on Monday, followed by ISM’s manufacturing PMI on Tuesday, non-manufacturing PMI on Thursday and key Non-Farm Payroll results on Friday.
Plenty of key Eurozone data will be published too, including inflation and growth projections for the bloc, as well as March’s unemployment rate for the bloc.
However, unless these datasets come in with surprisingly strong results, US data is more likely to drive the Euro to US Dollar (EUR/USD) exchange rate in the coming week.