German Retail Sales Slip for Fourth Month in a Row – Euro (EUR) Exchange Rates Come under Pressure while American Consumers Ramp up the Spending
The Euro US Dollar (EUR/USD) exchange rate continued to fall on Tuesday, limited by recent subpar Eurozone data releases and the current dovish stance of the European Central Bank (ECB). At the time of writing one Euro (EUR) was worth $1.20 – a 0.5% fall on the day.
German retail sales unexpectedly fell in March, according to the Federal Statistics Office, marking the fourth consecutive drop for this reading and further dampening hopes for a consumer-led upswing in the bloc’s largest economy.
The Federal Statistics Office recorded a month-on-month fall from -0.2% to -0.6% in March, well below the forecast of a rise to 0.8%.
Private consumption is a key growth driver, and given the recent disappointing GfK survey published last week and ongoing concerns over a trade confrontation between the US and the EU (even with the extra 30-day delay on US tariffs issued yesterday) market optimism over the bloc has diminished.
Beyond this, last week’s ECB rate decision was markedly dovish, with the central bank leaving its statement on monetary policy unchanged.
This included the assertion that the central bank could extend its bond-buying programme beyond September 2018 if inflation continues to fail to meet expectations.
Combined, this outlook has left the EUR/USD exchange rate down in the doldrums.
Upbeat US Data Expected to Keep US Fed Hawkish – Euro US Dollar (EUR/USD) Exchange Rate Tumbles
The US Dollar (USD) is currently riding a wave of economic optimism, supported by a range of upbeat US ecostats.
Amongst them was yesterday’s personal consumption expenditure reading – the US Fed’s preferred measure of inflation – which accelerated from 1.7% to 2% year-on-year in March.
Looking ahead, the ‘Greenback’ could also find some support on today’s US Markit manufacturing reading, as well as the ISM measures of employment and new orders.
If these prints post a strong performance then market anticipation for a rate hike (or at the very least an indication of a hawkish policy move in June) will surge.
Turning to the wider news, US President Donald Trump has decided to postpone his metal tariffs on various allied countries, including the European Union and NAFTA members.
This should allow the US to focus on trade negotiations with China whilst maintaining leverage in NAFTA negotiations and talks with the EU.
Beyond all of this, however, is tomorrow’s highly-anticipated US Fed rate decision, an event that could prompt volatility amongst all of the majors.
Euro US Dollar (EUR/USD) Exchange Rate Forecast: What can we expect from the US Federal Reserve?
The Euro US Dollar (EUR/USD) exchange rate could see even more losses tomorrow, depending on the outcome of the US Fed’s two-day rate meeting.
Analysts currently foresee 2-3 rate increases this year on the back of accelerated wage growth and rising consumer price inflation, but many are of the opinion that the central bank will hold off tomorrow and instead wait until June.
This is largely because the central bank’s board is in the process of undergoing a reformation, with the raft of new appointees generally appearing supportive of the Fed’s cautious approach to rate policy.
Indeed, Jerome Powell, the new Fed Chairman, asserted in a meeting in March that the group is taking the middle ground on policy, stating:
‘We’re trying to take the middle ground, and the committee continues to believe that the middle ground consists of further gradual increases in the federal-funds rate’.
In this regard, any indication of hawkish intentions for June could send the EUR/USD exchange rate plummeting, even if the team votes against raising rates.