Euro US Dollar (EUR/USD) Exchange Rate Improves, Coronavirus Could Weigh on US Consumer Spending

EUR/USD Exchange Rate Edges Higher, Fed Rate Cut Fears Weaken ‘Greenback’

The Euro US Dollar (EUR/USD) exchange rate edged higher this morning, with the pairing currently trading around $1.103 after US growth for the fourth quarter was left unchanged at 2.1%

Cailin Birch, Global Economist at the Economist Intelligence Unit, was however downbeat in his assessment of the Covid-19 outbreak for the US economy in the near-term.

Birch commented:

‘If the virus is not contained within China by end-March, as The EIU currently expects, this could weigh on corporate earnings to an extent that job creation and unemployment in the US would be negatively affected. This would weigh on consumer spending – the only source of buoyant growth in the US economy.’

As a result, the odds of a rate cut from the Federal Reserve have since increased, leaving the USD/EUR exchange rate to become increasingly subdued.

The US Dollar (USD) could edge higher today if February’s US Michigan Consumer Sentiment Index rises, as this could indicate a brightening outlook for the American economy.

EUR/USD Exchange Rate, German Unemployment Sinks in Fourth Quarter

The Euro (EUR) edged higher against the ‘Greenback’ after Germany’s unemployment change report for February beat forecasts and fell from -4 thousand to a better-than-expected -10 thousand.

Analysts at Reuters commented:

‘German unemployment dropped unexpectedly in February… suggesting that the strong job market will continue to propel growth in Europe’s largest economy.’

With fears that the Germany economy could face a recession in the near-term, today’s positive unemployment data has brightened the outlook for the Eurozone’s powerhouse economy.

However, with Italy’s coronavirus outbreak continuing to occupy single currency investors, we could see the EUR/USD exchange rate’s gains being short-lived.

Analysts at Wells Fargo, were mixed in their analysis, saying:

‘The Eurozone economy was already at risk amid the coronavirus due to its trade exposure to China, but the latest outbreak in Italy only adds to those risks. Fortunately, sentiment data were relatively encouraging in the beginning of Q1 and prior to the Italian outbreak, suggesting all is not lost for Eurozone Q1 GDP.’

Euro (EUR) investors will be looking ahead to today’s release of February’s German year-on-year inflation report. Any signs of improvement would further buoy the Euro (EUR) as Germany’s economic outlook continues to improve.

EUR/USD Outlook: German Manufacturing PMI in Focus

Euro (EUR) investors will be looking ahead to Monday’s release of February’s German Markit Manufacturing PMI. However, as this is expected to remain in contraction territory at 47.8 we could see the EUR/USD exchange rate begin to sink.

US Dollar (USD) investors will be looking ahead to Monday’s release of February’s US ISM Manufacturing PMI.

Any signs of improvement would further buoy confidence in the US economy and could lower the odds of a Fed rate cut. Consequently, we could see the ‘Greenback’ claw back some of its losses.