Euro US Dollar (EUR/USD) Exchange Rate Climbs to One-Month High on ECB Expectations

Euro US Dollar (EUR/USD) Exchange Rate Ends Session Strong

(Updated 9:00, 2/9/21) The Euro US Dollar (EUR/USD) exchange rate hit a fresh one-month high of $1.18558 at the end of yesterday’s European session, with the Eurozone’s positive employment data and hawkish comments from policymakers at the European Central Bank (ECB) continuing to provide an upside for the single currency.

Two ECB officials – Klaas Knot and Robert Holzmann – signalled their support for tapering bond purchases following the surge in inflation reported on Tuesday, while comments from Christine Lagarde, the ECB’s President, may also have excited EUR bulls.

Lagarde suggested that the central bank’s pandemic emergency purchasing programme (PEPP) could be ‘recalibrated’ to support only those sectors that continue to face significant challenges, which some analysts regard as akin to tapering. Lagarde said:

‘We really fought hard and responded well, and have come out now with a situation which still needs a lot of attention… But it seems to me now that policymakers have to be almost surgical — it’s no longer a question of massive support, it’s going to be a question of focused, targeted support in those sectors that have been badly hurt.’

Meanwhile, downward pressure on the US Dollar persisted despite a better-than-expected ISM manufacturing PMI and the US Treasury ten-year yield stabilising at around 1.30%. This could be due to an improving market mood sapping demand for the safe-haven ‘Greenback’.

Original article continues below:

Euro US Dollar (EUR/USD) Exchange Rate Boosted by EA Data

The Euro US Dollar (EUR/USD) exchange rate has strengthened today, with the single currency shrugging off this morning’s slump in German retail sales to gain against the ‘Greenback’.

Some more positive data from the Eurozone and a broad weakness in the US Dollar (USD) have helped EUR/USD recoup yesterday’s losses, with the pair trading around $1.184 at the time of writing.

Euro (EUR) Firms as EA Unemployment Falls

The Euro (EUR) looked like it was going to face headwinds this morning after German retail sales shrank by 5.1% in July, far worse than the 0.9% contraction that was forecast.

However, EUR investors seemed unperturbed by the slump in sales, partly because the contraction was inflated by June’s 4.5% retail sales growth.

Later in the morning, both Germany’s and the Eurozone’s final manufacturing PMIs were revised marginally lower than preliminary estimates. But, despite showing a slowdown in factory activity, the results were still among the best on record.

The latest Eurozone jobs data further supported the single currency, with the unemployment rate dropping from 7.8% in June to 7.6% in July. The rapidly falling unemployment rate in the Euro area adds to the pressure on the European Central Bank (ECB) to tighten monetary policy following yesterday’s CPI release.

In July, inflation in the Eurozone surged to 3% – well above the ECB’s 2% target – which has led some ECB policymakers to signal support for tapering the bank’s pandemic emergency purchase programme (PEPP) ahead of the ECB meeting next week.

Prospects of a more hawkish ECB seem to have roused the EUR bulls, with the single currency climbing against the ‘Greenback’ today.

US Dollar (USD) Dented by Disappointing Jobs Data

Meanwhile, the US Dollar has struggled today as US Treasury yields began to slip.

After hitting a high of 1.335% in the early hours of this morning, the US ten-year Treasury note has fallen steadily throughout the day, almost dropping below the 1.3% mark.

The drop in Treasury yields has removed a key element of support for the US Dollar, which has been relatively subdued since Federal Reserve Chair Jerome Powell remained quiet on the Fed’s tapering timeline last week.

The US Dollar faced further challenges this afternoon after the ADP employment change figure for August massively missed expectations. Economists forecast a 613,000 rise in US employment last month but the actual figure printed at 374,000, which some commentators see as evidence that the Delta variant of coronavirus is slowing the recovery in the US labour market.

However, the 374,000 rise is still an improvement on July’s increase of 326,000, so the downside in USD from this report may be limited. Additionally, Andrew Hunter, senior US Economist at Capital Economics, argues that Friday’s jobs data could be more positive:

‘More generally, the ADP’s poor record in tracking the official figures means that we still expect a reasonably solid 750,000 increase in non-farm payrolls in the employment report due on Friday.’

The ISM manufacturing PMI this afternoon provided some more upbeat data for the US Dollar, beating expectations to rise from 59.5 to 59.9. This could support USD as the day comes to a close.

EUR/USD Exchange Rate Forecast: Could the US Dollar Recoup its Losses?

At the time of writing it is too early to see whether the ISM PMI will have a significant effect on the EUR/USD, though it could potentially prevent further losses for the US Dollar this afternoon.

A lack of significant Eurozone data could leave the single currency open to losses tomorrow, though it remains to be seen whether the hopes of a hawkish ECB will continue to provide an upside.

Across the pond, forecasts for the US data look rather lacklustre. Initial jobless claims are expected to print marginally lower than the previous week’s results, while factory order growth is expected to slow from 1.5% in June to 0.3% in July. Any surprises could drive some movement in EUR/USD.

Samuel Birnie

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