Euro US Dollar (EUR/USD) Exchange Rate Firms after Poor US PMI Performance
(Updated 16:39 23/08/22)
The Euro US Dollar (EUR/USD) exchange rate climbed over the course of the day as disappointing US PMI figures helped to bolster the currency pair. The data release helped the Euro (EUR) recover from two-decade lows against the US Dollar (USD).
August’s PMI readings indicated that output across the US private sector fell at its fastest rate since May 2020. The service sector saw the most significant fall, with inflationary pressures placing pressure on consumer spending. Supply chain issues and soaring costs also contributed to the fall.
Sian Jones, Senior Economist at S&P Global Market Intelligence, said:
‘Gathering clouds spread across the private sector as services new orders returned to contractionary territory, mirroring the subdued demand conditions seen at their manufacturing counterparts.’
At time of writing the EUR/USD exchange rate was at around $0.9987, which was up roughly 0.5% from the morning’s opening figures.
Original article continues below:
Euro US Dollar (EUR/USD) Exchange Rate Trends Sideways amid Risk-On Mood
The Euro US Dollar (EUR/USD) exchange rate is trading within a narrow range today. A risk-on impulse in the markets could be limiting movement in the currency pair today. Additionally, Federal Reserve rate hike bets may be capping gains.
At time of writing the EUR/USD exchange rate is at around $0.9940, virtually unchanged from this morning’s opening figures.
Euro (EUR) Drops as Energy Prices Soar
The Euro (EUR) is slipping against its competitors today. The single currency is currently sitting close to two-decade lows against peers such as the US Dollar (USD). The Eurozone’s energy crisis and the possibility of a looming recession are likely both weighing on the single currency today.
The announcement on Friday that Russian supplier Gazprom would be halting gas flows for three days at the end of August saw energy prices leap. This is likely keeping pressure on the Euro today.
PMI figures released earlier today may also be pushing the single currency lower. Private sector output continued to slide in August for both Germany and the Eurozone.
Andrew Harker, economics director at S&P Global Market Intelligence, said:
‘Cost of living pressures mean that the recovery in the service sector following the lifting of pandemic restrictions has ebbed away, while manufacturing remained mired in contraction in August.’
US Dollar (USD) Ticks Lower despite Fed Rate Hike Bets
The US Dollar (USD) is trending lower against its rivals today. A return of risk appetite may be weighing on the safe-haven ‘Greenback’.
Expectations of further interest rates from the Federal Reserve could be underpinning USD, however. The results of a Reuters poll released on Monday found that a majority of the economists surveyed supported a 0.5% rate hike from the Fed in September.
Speaking last week, multiple Fed policymakers also signalled they were supportive of further interest rate hikes from the central bank. On Thursday San Francisco Fed President Mary Daly said that a September rate hike of 0.5% or 0.75% would be ‘reasonable’.
Investors are eagerly awaiting speeches from the Fed’s Jackson Hole conference this week for further impetus regarding the central bank’s forward policy.
EUR/USD Exchange Rate Forecast: Will US GDP Figures Push Economy into Technical Recession?
Looking ahead for the Euro, a slowdown in second quarter GDP growth for Germany could weigh on EUR if Thursday’s figures print as expected.
Also for the Euro, the release of the latest European Central Bank (ECB) monetary policy meeting accounts may prompt some movement in the single currency. Investors will be looking for any hints concerning the central bank’s pace of policy tightening.
For the US Dollar, a downturn in private sector growth could dent confidence in the currency if PMI readings print as forecast later today.
Thursday’s GDP growth figures may also cause sharp losses for the US Dollar. The data is expected to indicate a second quarter drop in growth which is likely to push the US economy into a technical recession.
Friday’s predicted downturn to the PCE price index, the Fed’s preferred measure of inflation, could see USD slip amid reduced rate hike bets.
On the other hand, a speech from Fed Chair Jerome Powell later that day could curb losses if he reiterates the central bank’s commitment to interest rate hikes. The Fed’s Jackson Hole symposium this week could also prompt movement based on market rate hike bets.