Euro US Dollar (EUR/USD) Exchange Rate Muted as Eurozone Current Account Narrows
A sharp decline in May’s Eurozone current account is keeping the Euro to US Dollar (EUR/USD) exchange rate under pressure ahead of the weekend.
Markets were not impressed to find that the current account surplus had narrowed sharply from €27.3bn to just €4.6bn in May, highlighting a weakening economic outlook.
The persistent protectionist rhetoric of the Trump administration raises the fear that international trade conditions are likely to deteriorate further over the coming months.
If the US pursues additional tariffs against the EU this could weigh on export volumes, dragging on the Eurozone’s economic growth.
As the currency union has shown little sign of recapturing the momentum it enjoyed in 2017 the Euro (EUR) looks vulnerable to further downside pressure.
EUR/USD Exchange Rate Benefits from Trump’s Fed Criticism
The Euro to US Dollar (EUR/USD) exchange rate benefitted, however, as President Trump seemed to criticise the Federal Reserve’s approach to monetary policy in a remark where he said he was ‘not thrilled’ about interest rate rises..
This naturally spooked investors, raising the spectre of a potential currency war if Fed policymakers are pressured into holding off on an interest rate hike.
While US trade tariff policy has played a part in driving up the value of the US Dollar (USD) Trump and other White House officials have expressed dissatisfaction with higher USD exchange rates.
Even so, if the Fed resists political pressure and opts to hike interest rates again in the near future this is likely to drag the EUR/USD exchange rate lower.
However, if St Louis Fed President James Bullard takes a dovish tone in comments this afternoon the mood towards the US Dollar could sour further.
Weakening Eurozone Consumer Confidence Forecast to Weigh on Euro US Dollar (EUR/USD) Exchange Rate
July’s Eurozone consumer confidence index is not expected to offer any particular support to the Euro to US Dollar (EUR/USD) exchange rate.
Forecasts point towards a worsening in bloc sentiment, with the index expected to dip from -0.50 to -0.75.
Deteriorating consumer confidence would not bode well for the outlook of the wider economy, suggesting that households are likely to have reigned in their spending further.
Signs that the economy started off the third quarter on a weaker footing would give investors fresh incentive to sell out of the Euro.
On the other hand, if July’s raft of Eurozone manufacturing and services PMIs show an improvement on the month this could help the EUR/USD exchange rate to recover ground.
Trade Tensions and US Politics to Dominate EUR/USD Exchange Rate Outlook
Global trade war fears are likely to further fuel volatility for the Euro to US Dollar (EUR/USD) exchange rate over the coming days.
If Donald Trump continues to level criticism at the Federal Reserve this could keep the US Dollar under some degree of pressure.
However, solid US data could encourage USD exchange rates to push higher, as this would give the Fed further incentive to raise interest rates sooner rather than later.
An increase in the second quarter US gross domestic product may see the Euro to US Dollar (EUR/USD) exchange rate slump sharply next week.