Despite continued signs of recovery in Eurozone data, the US Dollar to Euro (USD/EUR) exchange rate didn’t face much obstruction in the past week as it put in impressive gains. The US Dollar rebounded from days of market jitters amid hopes for US economic resilience, and as the US currency recovered investors felt that mixed strength Eurozone data was not enough to help the Euro to hold its ground.
While last week saw USD/EUR recover just slightly from December’s sharp losses, gaining from 0.8948 to 0.8960, this week’s gains have been much more impressive.
When markets opened on Monday, USD/EUR briefly slipped, but as markets cooled from global geopolitical tensions the pair spent most of the week recovering even more strongly.
At the time of writing on Friday, USD/EUR is trending closely to a high of 0.9019 – the pair’s best level since the end of December. Still, the pair remains well below the levels seen in November.
USD Exchange Rates Rebound as Markets Cool from Geopolitical Tensions
Last weekend, the US Dollar was hit alongside risk and trade-correlated currencies by news that the US government had killed a top ranked Iranian official in an air strike.
The news caused market panic. Even the US Dollar, typically a safe haven currency, was not able to benefit amid concerns that the tensions could damage the US economic outlook and leave the Eurozone outlook more appealing to markets instead.
However, Iran’s retaliation was ultimately perceived as an attempt to prevent further escalation, and the US has thus far indicated it will not seek further escalation either.
This restored risk-on movement towards the end of the week. As the US Dollar had been damaged by the risk movement, the US Dollar has been rebounding on the news.
Still the US Dollar’s strength is limited as well, and remains weighed by concerns that the US economic outlook is still evening out with that of other major economies.
According to Jamie Fahy, Global Macro and Asset Allocation Strategist at Citi:
‘We’re not telling investors to go out and buy Euros. What we’re telling investors is that the US is converging back to Europe, there are tentative signs across the data set that Europe is stabilizing,
Broadly speaking, we’re looking at the big picture theme of US exceptionalism probably reversing.’
Still, despite the mixed outlook, the US Dollar is firming this morning ahead of major US Non-Farm Payroll stats due this afternoon.
EUR Exchange Rates Lack Drive amid Mixed Eurozone Data and Recovering Rivals
While the Euro has seen stronger demand in recent months due to signs of recovery in the Eurozone economic outlook, the latest data has not shown enough of an improvement to notably influence the shared currency’s appeal.
Today’s French industrial production beat expectations with a result of 0.3%, which followed yesterday’s better than expected German industrial production results.
However, while these stats beat forecasts, the week’s other data including yesterday’s German trade results and Wednesday’s German factory orders stats disappointed investors.
The data overall indicated that while there are signs of recovery in the Eurozone outlook, there are persisting signs of weakness in trade as well.
Amid a lack of solid market reason to buy or sell the Euro, the shared currency was driven more by the strength of rival currencies.
As the US Dollar is the Euro’s biggest rival and the currencies have a negative correlation, a rebounding US Dollar played a big role in the Euro’s weakness over the past few sessions.
USD/EUR Exchange Rate Forecast: US Non-Farm Payrolls in Focus, Inflation Stats Ahead
There is still potential for the US Dollar to Euro exchange rate to see a shift in demand before markets close for the week, depending on how this afternoon’s US Non-Farm Payroll report unfolds.
The NFP report is typically highly influential and is closely watched by the Federal Reserve.
As a result, if the US job results fall short of expectations, Fed interest rate cut speculation could rise and put fresh pressure on the US Dollar.
Stronger data would boost hopes of US economic resilience and make it more likely for USD/EUR to hold its recent gains instead.
Looking ahead to next week, there are slews of US and Eurozone data due for publication.
Inflation results could influence central bank speculation. US inflation stats are due on Tuesday, with Eurozone inflation results expected on Friday.
Stronger than expected Eurozone inflation would soften European Central Bank (ECB) easing speculation and could drag the US Dollar to Euro exchange rate lower again.
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