The Euro, despite fluctuating against most of the majors today, maintained its steady climb against the US Dollar as a result of a spate of positive data from the Eurozone.
The year-on-year German Consumer Price Index figures beat expectations by increasing from 1.5% year-on-year in May to 1.6% year-on-year in June (originally forecast to decrease to 1.4%). The jump in inflation served the Euro well, as markets monitor CPI as an indicator for the likelihood of a hawkish response from the European Central Bank (ECB).
With inflation beating expectations, traders have become increasingly hopeful for tighter monetary policy from the ECB as the year progresses.
Eurozone Services Confidence also increased this June despite being expected to remain at previous levels, as did Industrial Confidence and indeed Economic Confidence. The positive sentiment illustrated in these surveys lent further credence to an optimistic near-term future for the Euro.
US GDP Growth Reaches 1.4% for First Quarter, USD Bearish
The US Dollar has struggled as of late, even reaching its lowest level against the Euro in a year on Wednesday. These tribulations can be attributed to some fairly disappointing US economic data releases and the ongoing battle for the Trump administration in pushing legislation through congress.
This afternoon however the ‘Greenback’ managed to briefly regain some of its composure following a positive report that showed stronger than expected US gross domestic product (GDP) growth for the first quarter.
Originally forecast to remain at initial estimates of 1.2%, the GDP was revised to 1.4% thanks to an increase in consumer spending, which accounts for some two-thirds of US economic output.
There are also some economists that believe that these figures underestimate the pace of growth going on in the US, that residual seasonality influenced the first quarter statistics and that it would be a mistake to draw negative conclusions for the rest of the year based on them.
Traders responded somewhat hesitantly, however, as recent hawkish trends with the European Central Bank, Bank of England (BoE) and indeed the Bank of Canada (BOC) have made their respective currencies seem more desirable.
Euro US Dollar Forecast
The positive GDP growth for the US does bodes well for the US Dollar – any sign of an accelerating economy is likely to raise the question of inflation and thus the possibility of a more aggressive bout of monetary tightening.
However, the US central bank isn’t the only one expressing a moderately hawkish attitude. Many traders bought into the Euro following ECB President Mario Draghi’s (perhaps misinterpreted) comments, but with today’s CPI figures from the Eurozone expressing sturdy inflation, the ECB tapering quantitative easing in 2017 remains a possibility.
Friday will see the release of the Eurozone’s overall June inflation figures – rather than specifically Germany’s. If they are indeed as positive, then the Euro to US Dollar (EUR USD) exchange rate could extend recent gains.
Current EUR USD Interbank Exchange Rates
At the time of writing, the Euro US Dollar (EUR USD) exchange rate is trading at 1.1419. Conversely the US Dollar Euro (USD EUR) exchange rate is trading at 0.8757.