EUR/USD Exchange Rate Continues to Climb as US GDP Release Prints Low
(Updated 15:00, 29/07/2021) The Euro US Dollar (EUR/USD) exchange rate is still rising this afternoon as poor US GDP data exacerbates low trading sentiment.
Analysts had forecast an 8.5% increase in expansion, but this month’s GDP printed only 6.5% higher than last quarter. Contractions in private inventory investment, residential fixed investment and federal government spending all contributed towards the lower-than-expected figure.
The rapid spread of the coronavirus delta variant, supply-chain disruptions, shortage of workers and a cooling housing market also weighed upon economic expansion, while a smaller-than-expected decrease in jobless claims reveals that the US still has some recovering to do.
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EUR/USD Exchange Rate Rises as US Dollar Falls on Fed Decision
The Euro US Dollar (EUR/USD) exchange rate is climbing steadily as the US Dollar (USD) takes a hit after yesterday’s dovish Federal Reserve decision. Better-than-expected German unemployment figures also helped to boost the Euro (EUR) against USD.
At the time of writing, the Euro trades at $1.1874, up 0.2% from opening levels.
US Dollar (USD) Faces Pressure After Dovish Fed Decision
The US Dollar has fallen today against most of its peers as the Federal Reserve left policy unchanged yesterday. Fed Chairman Jerome Powell characterised ‘substantial further progress’ in the labour market as still ‘a ways off’, maintaining that high inflation is transitory.
In alignment with the markets’ bearish response, some have said the Fed needs to be more direct in communicating its plans:
Rick Rieder from BlackRock investment firm remarks ‘Tapering in a deliberate manner … is now so insignificant to the size of financial markets that not outlining a plan is more confusing than just putting one out there.’
Speculation is rife over when monetary policy may be altered. Some think the Fed may outline tapering plans at August’s Jackson Hole summit, while others predict a tapering announcement in December.
The spread of the highly contagious Covid Delta variant in America is no doubt to blame, at least in part, for the Fed’s cautious approach. The daily case average reached a three-month high of 60,955 on Tuesday.
According to the Baylor Scott & White healthcare system in Texas, ‘the Delta variant is the most contagious and dangerous strain seen to date’; with US citizens reluctant to take up vaccinations, ongoing Covid concerns could seriously threaten the USA’s economic recovery.
Euro (EUR) Boosted by Promising German Unemployment Data
The Euro has risen against the US Dollar this morning as trading sentiment is bolstered by strong German unemployment figures and Euro area economic sentiment.
German unemployment change figures for July dropped by 91,000 this morning, compared with the 28,000 expected. This reflects increased hiring: a positive indicator of economic growth.
Meanwhile, the economic sentiment indicator for the Euro area printed at 119, exceeding estimates by half a point. This is an all-time high and marks the sixth consecutive month of rising sentiment.
Morale among service providers was the strongest since August 2007 (up 1.4 points to 19.3) and that among manufacturers hit a fresh record high (up 1.8 points to 14.6)
As a result of the strong negative correlation between the Euro and US Dollar, EUR has also found some support as a result of USD’s underperformance on yesterday’s Fed decision.
Euro US Dollar EUR/USD Exchange Rate Forecast: US GDP in the Spotlight
Looking ahead, US GDP data this afternoon is likely to drive the EUR/USD exchange rate. GDP is predicted to have grown by 8.5% in the second quarter, an increase of 2.1% on last month’s expansion.
If estimates are correct, the US economy will see the second-fastest expansion in 38 years: an accomplishment supported by government stimulus and COVID-19 vaccinations.
Still, the rapid spread of the delta variant, supply-chain disruptions, shortage of workers and a cooling housing market are likely to weigh upon further growth. Investors will look to tomorrow’s spending and income data for more direction.
Euro investors, meanwhile, are poised to act upon tomorrow’s GDP data for the Euro area, alongside inflation figures. Quarterly GDP is forecast to expand by 1.5%, while inflation is expected to rise to 2%.