Already benefitting from slightly softer safe haven demand this week, the US Dollar has easily been able to sustain considerable gains and push the Euro to US Dollar (EUR/USD) exchange rate considerably lower due to fresh weakness in the Euro. Investors are selling the shared currency due to strength in its rival the US Dollar, but this week’s German data has kept additional pressure on the shared currency due to concerns over the Eurozone’s economic outlook.
While last week saw an impressive EUR/USD gain from 1.1025 to 1.1093, the pair has lost around double of those gains this week as market sentiment reverses.
At the time of writing on Friday, EUR/USD is trending close to a low of 1.0951. This was the worst level for the pair since October 2019 – making it a four month low. This week’s considerable losses were due to a mixture of Euro weakness and US Dollar strength, and lingering hopes for Eurozone economic recovery have been unable to prevent Euro losses.
EUR Exchange Rate Outlook Worsens as German Production Shows Worst Figures in a Decade
For much of the past week, the Euro was driven by strength in its rivals like the US Dollar. Mixed Eurozone data sent mixed messages about a potential Eurozone economic recovery, so was largely brushed over.
Instead, investors sold the Euro due to recovering strength in the US Dollar. The two currencies often see a negative correlation, so the Euro falls when the US Dollar strengthens.
However, at the end of the week the Euro’s weakness deepened in reaction to yet another poor German dataset.
Rather than the underwhelming German factory orders yesterday being a one-off, today’s industrial production results indicated that Germany’s economy was overall still seeing much worse economic performance than usual.
Today’s German industrial production results from December showed a shocking monthly contraction of -3.5%, much worse than the expected -0.2%.
This marked the biggest decline in the print for a decade. The data was so poor that analysts began to doubt the recent signs that the Eurozone economy was showing signs of recovery. According to Derek Halpenny, Analyst at MUFG:
‘The hard data sits inconsistently with most sentiment data pointing to some improvement. But the political line that `recovery is coming’ is losing credibility fast,’
USD Exchange Rates Firm Ahead of US Non-Farm Payroll Report
The US Dollar has once again been one of the most appealing major currencies on the market this week, largely reversing the weakness it saw towards the end of January.
At the beginning of the week, markets calmed slightly over the coronavirus outbreak due to a lack of shocking developments. This dampened the strong demand for the safest of safe haven currencies like the Japanese Yen (JPY), and encouraged investors to return to the US Dollar.
While coronavirus jitters are lighter this week, investors are still hesitant to take too many risks, leaving the safe US Dollar among the most appealing majors.
On top of this, the week’s US data has been fairly strong, continuing to indicate that the US economic outlook is resilient.
In particular, ISM’s US PMI results were better than forecast in January.
These factors are keeping US Dollar investors optimistic and bullish on the currency ahead of today’s anticipated Non-Farm Payroll report.
EUR/USD Exchange Rate Forecast: Non-Farm Payroll Report in Focus
The US Dollar is resilient this week thanks to hopes around the US economic outlook, but that could change if upcoming data disappoints investors.
Most of this week’s notable US data has beaten forecasts, but this afternoon’s US Non-Farm Payroll report will be the week’s most influential dataset of all.
Markets expect that the number of new jobs increased in January, while the unemployment rate remained at 3.5%. If the NFP report falls notably short of expectations, it could dampen US economic hopes.
In fact, as NFP data is closely watched by the Federal Reserve, poor data could cause Fed interest rate cut bets to rise.
Meanwhile, Euro investors are once again anticipating signs of recovery in the Eurozone economic outlook. Continued US Dollar strength would keep the Euro under pressure and make it difficult for the Euro to US Dollar exchange rate to recover.
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TAGS: American Dollar Forecasts Euro Forecasts