Euro US Dollar Exchange Rate Forecast: EUR/USD Sinks as Eurozone Business Growth Hits Four-Year Low

EUR/USD Exchange Rate Tumbles Following Disappointing PMI Data

The Euro to US Dollar (EUR/USD) exchange rate slumped this morning as markets reacted to the Eurozone’s latest PMI data.

At the time of writing EUR/USD exchange rate is down by roughly 0.6% at $1.1292, leading the pairing to strike a two-week low.

Euro (EUR) Exchange Rate Pummelled by Weak PMI Figures

The Euro (EUR) slumped against the US Dollar (USD) on Friday morning in the wake of some disappointing PMI data from the Eurozone.

According to data compiled by IHS Markit, the Eurozone’s composite PMI tumbled from 52.7 to just 51.3 this month, missing expectations of a modest acceleration to 52.8 and resulting in growth in the bloc’s private sector slowing to a four-year low.

This slowdown appeared in part to be a result of the disruptions caused by the ‘yellow vest’ protests in France, which saw business growth in the Eurozone’s second largest economy actually contract in December.

However analysts warn that PMI readings also reflect a broader slowdown in underlying growth across the Eurozone, with firms concerned over future growth due to geopolitical concerns and weak demand.

Chris Williamson, Chief Business Economist at IHS Markit, said:

‘Companies are worried about the global economic and political climate, with trade wars and Brexit adding to increased political tensions within the euro area.

‘Forward-looking indicators such as new orders and future expectations remaining subdued suggest that demand growth is stalling, adding to downside risks to the immediate outlook.’

US Dollar (USD) Exchange Rate Advances Ahead of Expected Fed Rate Hike

At the same time, the US Dollar (USD) is strengthening this morning, partly driven by losses in both the Euro (EUR) and Pound (GBP).

However the ‘Greenback’s gains also appear to be fuelled by expectations of a rate hike from the Federal Reserve next week, although questions still linger over the bank’s plans for 2019.

Michael McCarthy, Chief Market Strategist at CMC Markets explains: ‘There is a lot of disagreement in the markets over the Fed’s rate hike course in 2019 with traders expecting anywhere between one to four rate hikes.’

This could result in some heavy losses in the US dollar next week if the bank’s forward guidance errs on the side of caution.

EUR/USD Exchange Rate Forecast: Weak US Retail Sales to Reverse Gains in the ‘Greenback?

Looking ahead, the release of the latest US retail sales figures may help the Euro US Dollar (EUR/USD) exchange rate to recoup some losses later this afternoon.

Economists forecast sales growth will have retreated from 0.8% to 0.2% in November despite the Black Friday rush, potentially strengthening the case for the Fed to hold off on multiple rate hikes next year.

Meanwhile the Euro may struggle to mount a recovery in the coming week, with the only data of note likely to be the Eurozone’s latest trade and CPI figures on Monday, with current forecasts suggesting that both releases will prove EUR negative.

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail