Euro to US Dollar Exchange Rate Rebounds from Worst Levels despite Underwhelming Eurozone Inflation
Despite some underwhelming Eurozone inflation data weighing on European Central Bank (ECB) interest rates this week, the Euro to US Dollar (EUR/USD) exchange rate has rebounded from multi-month lows.
EUR/USD remains well below the week’s opening levels however, and is on track to see its third consecutive weekly loss.
EUR/USD opened the week at the interbank level of 1.21 and has since tumbled to near a four-month-low of 1.19. It has only rebound slightly from its worst levels and the interbank rate remained in the region of 1.19 at the time of writing.
The primary reason for the rebound in Euro to US Dollar exchange rate trade was a profit-taking selloff in the US Dollar (USD). The US currency has paused for air following two weeks of strong performance on expectations that the US economy is strengthening.
Euro (EUR) Exchange Rate Rebound Limited as Eurozone Inflation Disappoints
Thursday saw the publication of the Eurozone’s April Consumer Price Index (CPI) projections, which fell short of forecasts in both yearly prints.
The year-on-year projection was forecast to remain at 1.3%, but unexpectedly slowed to 1.2%. Meanwhile, the core figure was even more concerning, sliding from 1% to 0.7% and missing the forecast 0.9%.
It indicated that the Eurozone’s price pressures were even more subdued than expected and caused markets to push back their expectations for any change to interest rates from the European Central Bank (ECB).
Markets had previously speculated that the ECB could be plotting a course to hike Eurozone interest rates in the second half of 2019 – but now traders speculate that the ECB may not hike Eurozone rates until 2020 at the earliest.
The Euro’s (EUR) gains were limited further on Friday, as the Eurozone’s final April services and composite PMIs from Markit fell short of projects and indicated that the Eurozone’s economy was performing even worse than expected in April.
With the Eurozone economy slowing quicker than expected from last year’s strong growth pace, the Euro has been a lot less appealing.
US Dollar (USD) Exchange Rates Fall from Highs despite Solid US Data
All this week’s data and US news has been generally optimistic and has given investors plenty of reason to keep the recent US Dollar (USD) rally going.
However, the currency took a breath on Thursday and Friday morning as some investors sold the currency from its highs in a bout of profit-taking.
The US Dollar was also weighed by the latest trade uncertainties. As the US and China finally begun formal trade talks this week, markets are anxious about the possibility that negotiations may go poorly and end in a trade war.
Thursday’s US data was generally supportive though. While April’s ISM non-manufacturing PMI fell short of forecasts and only printed at 56.8, Markit’s final April composite PMI beat expectations at 54.9.
US factory orders and March’s US trade deficit results also came in slightly better than forecast.
Euro to US Dollar (EUR/USD) Forecast: US Non-Farm Payroll Report in Focus
The Euro to US Dollar (EUR/USD) exchange rate could still see another shift in direction before markets close for the week, depending on the results of Friday’s US Non-Farm Payroll results.
April’s US job market results will be published during the American session and are expected to mostly show an improvement from last month’s disappointing report.
The headline Non-Farm Payroll figure is forecast to rise from 103k to 192k and the unemployment rate is predicted to have improved from 4.1% to 4%.
While wage growth is forecast to have slowed slightly from 0.3% to 0.2% month-on-month, it is unlikely to have a notable downside effect on US Dollar (USD) trade unless it disappoints.
If the US job data comes in much worse than expected, the US Dollar could shed some of its recent gains and EUR/USD may even see a more significant recovery.
Euro (EUR) trade is unlikely to see a major shift in tone in the coming days with markets bearish about the European Central Bank (ECB) outlook. German trade stats could influence the Euro to US Dollar (EUR/USD) exchange rate next week however.