Sharp Fall in US Retail Sales Drives US Dollar (USD) Exchange Rate Weakness
UPDATE: The mood towards the US Dollar (USD) soured this afternoon as December’s advance retail sales data fell significantly short of forecast.
As sales contracted -1.2% on the year, defying expectations of modest growth, confidence in the outlook of the US economy deteriorated, leaving USD exchange rates on a weaker footing.
Even so, as confidence in the single currency remained lacking the EUR/USD exchange rate struggled to capitalise on this underwhelming data.
Underwhelming German Growth Limits Euro US Dollar (EUR/USD) Exchange Rate Upside
Germany’s fourth quarter gross domestic product data painted a bleak picture of the Eurozone’s powerhouse economy, leaving the Euro (EUR) on a weaker footing.
Although the economy avoided falling into a technical recession, with growth only stagnating at 0% in the fourth quarter rather than contracting further, this was not enough to encourage investor confidence.
As deteriorating trade conditions continued to drag on the German economy, even as domestic demand held up, the mood towards the Euro naturally soured.
Confirmation that the Eurozone as a whole lost further growth momentum over the course of 2018 put additional pressure on the single currency, keeping the Euro to US Dollar (EUR/USD) exchange rate on a narrow trend this morning.
The lacklustre state of Eurozone growth looks set to deter the European Central Bank (ECB) from adopting a more hawkish outlook in the months ahead, to the detriment of the Euro.
US-China Trade Speculation Limits US Dollar (USD) Demand
Confidence in the US Dollar (USD), meanwhile, faltered as markets continued to speculate over the outcome of the latest US-China trade discussions.
While investors remain hopeful that a breakthrough could see the US back away from hiking tariffs on Chinese goods this was not enough to keep USD exchange rates on a bullish trend.
This afternoon’s advance retail sales data could put additional pressure on the US Dollar if spending shows signs of slowing on the month.
A weaker performance from the retail sector over the festive period is likely to raise concerns over the underlying health of the US economy, offering the EUR/USD exchange rate a rallying point.
EUR Exchange Rates Look for Boost from Widened Eurozone Trade Surplus
Worries over the outlook of the Eurozone economy could ease ahead of the weekend, however, if December’s Eurozone trade balance proves encouraging.
Any widening of the trade surplus would go some way towards easing market worries over the drag which global trade tensions are having on economic growth.
Signs of improved trade conditions should give EUR exchange rates a solid leg up on Friday morning, even in the wake of the underwhelming GDP data.
On the other hand, if the surplus narrows on the month this would expose to Euro to another bout of selling pressure, with confidence in the outlook deteriorating further.
Stronger Consumer Sentiment Forecast to Boost US Dollar (USD) Exchange Rates
Fresh support could be in store for the US Dollar if February’s University of Michigan consumer sentiment index strengthens.
A reversal of the previous month’s decline may encourage USD exchange rates to gain fresh ground, with improved consumer sentiment boding well for the wider economic outlook.
Another deterioration in confidence, though, would dent the appeal of the US Dollar once again.
As long as Federal Reserve policymakers continue to adopt a cautious stance on monetary policy this could give the EUR/USD exchange rate an additional boost.