- Euro ticks higher following better-than-expected German growth
- US Dollar rallies on hawkish Fed speeches
- US Advance Retail Sales better expectations
- EUR/USD exchange rate forecast to hold losses
Euro (EUR) Exchange Rates Tick Higher but US Dollar Strength Limits Gains
In recent weeks the Euro has strengthened in response to bets of long-term delays to a Federal Reserve rate hike. However, limited upside from domestic data continues to support speculation that the European Central Bank (ECB) will have no choice but to ease monetary policy outlook further.
The shared currency managed to eke out fractional gains versus a number of its major peers today, however, after German growth data produced better-than-forecast results. The preliminary figure for first-quarter German Gross Domestic Product showed 1.3% growth on a non-seasonally adjusted annual basis; eclipsing the median market forecast 1.2%.
‘Looking at the so far available G7 data shows that Germany even outpaced its peers. It is true that special circumstances, such as the mild winter weather (and hence construction), additionally boosted GDP growth. However, such fault-finding misses the point. Even if the weather god had not been on our side the recovery would have gathered pace. The German economy is in the midst of a regime change towards more domestic demand,’ stated Andreas Rees, chief German economist at UniCredit Research.
Euro appreciation has been limited, however, thanks to US Dollar strength and slightly slower-than-expected Eurozone GDP. The second estimate for Q1 Eurozone Gross Domestic Product came in at 0.5% on the quarter and 1.5% on the year. This fell short of the median market forecast 0.6% and 1.6% respectively.
The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1286.
US Dollar (USD) Exchange Rates Rally following Hawkish Fed Speeches
The US Dollar has struggled to sustain any significant rally in recent weeks thanks to mounting speculation that the Federal Reserve will look to delay a benchmark interest rate hike for a considerable period.
However, the US Dollar has made a marked recovery overnight after several Federal Reserve officials made comparatively hawkish speeches. Kansas City Fed President Esther George, for example, said that interest rate levels are currently too low.
‘I support a gradual adjustment of short-term interest rates toward a more normal level, but I view the current level as too low for today’s economic conditions. The economy is at or near full employment, and inflation is close to the FOMC’s target of 2 percent, yet short-term interest rates remain near historic lows.’
US Advance Retail Sales bettered expectations in April, coming in at 1.3% despite predictions of only 0.8% growth. Additionally, the University of Michigan Confidence report showed that consumer confidence rose from 89 to 95.8, significantly bettering the median market forecast rise to just 89.5.
The Euro to US Dollar (EUR/USD) exchange rate dropped to a low of 1.1281 during Friday’s European session.
EUR/USD Exchange Rate Forecast to Hold Losses
Given that Eurozone GDP data failed to impress, there is a good chance that the Euro to US Dollar (EUR/USD) exchange rate will hold losses for the remainder of Friday’s trade. With that said, any poor results from the aforementioned US ecostats today could reverse Dollar gains.
April’s US Advance Retail Sales is forecast to show 0.8% growth, whilst May’s preliminary figure for University of Michigan Confidence is expected to come in at 89.5.
The Euro to US Dollar (EUR/USD) exchange rate reached a high of 1.1378 during Friday’s European session.