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Euro to US Dollar (EUR/USD) Exchange Rate Forecast to Advance despite Disappointing German IFO Data

EUR/USD Conversion Rate Predicted to Tick Higher on Carry Trade Demand

The Euro to US Dollar (EUR/USD) exchange rate edged slightly higher by around 0.5% on Monday afternoon.

Despite the fact that European economic data failed to meet with expectations on Monday, the shared currency advanced versus nearly all of its major peers. January’s German IFO Business Climate was predicted to drop from 108.6 to 108.4, but the actual result was a softening to 107.3. German IFO Current Conditions failed to meet with the median market forecast 112.8, with January’s actual result dropping to 112.5. Furthermore, German IFO Expectations missed the market consensus of a slight drop from 104.6 to 104.1, with January’s result falling to 102.4.

The Euro appreciation can be linked to demand for carry trades as traders take advantage of the European Central Bank’s (ECB) accommodative policy outlook. Also supporting the Euro was a TV interview given by Head of the Dutch central bank and ECB governing council member Klaas Knot, who stated that the low price of oil bas boosted purchasing power in the Eurozone and has aided the economic recovery.

In response to Germany’s IFO data, Pantheon Macroeconomics stated: ‘The fall adds to the more downbeat message from economic survey data at the beginning of the first quarter, but the dovish message from last ECB’s meeting likely is not fully reflected in these data, and we expect a rebound next month. Across sectors, the declines were concentrated in manufacturing and construction, while retail and wholesale trade held up, likely lifted by lower energy prices. Services sentiment also dipped noticeably, however, to a six-month low due to a fall in expectations.’

The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.0843.

US Dollar Exchange Rates Fluctuate as Safe-Haven Demand is Countered by Global Economic Health Concerns

Although the prospect of additional stimulus measures from the People’s Bank of China (PBoC) and the falling price of crude oil has caused heightened demand for safe-haven assets, the US Dollar has seen a mixed performance versus its rivals on Monday morning. This is because many analysts are concerned that the declining health of the global economy will cause the Federal Reserve to delay a cash rate increase beyond the timeframe currently expected. Later today, the Dallas Federal Reserve Manufacturing Index for January has the potential to shake things up for the ‘Buck’ (USD).

One of the major concerns for Fed rate hawks is the low price of oil as highlighted by Federal Reserve Bank of St. Louis President James Bullard earlier this month. ‘With renewed declines in crude oil prices in recent weeks, the associated decline in market-based inflation expectations measures is becoming worrisome,’ Bullard, who votes on policy this year, said in a speech in Memphis, Tennessee. While central bankers typically ‘look through’ oil price changes, ‘one circumstance where one may be more concerned is when inflation expectations themselves begin to change due to the changes in crude oil prices,’ he said.

The Euro to US Dollar (EUR/USD) exchange rate dropped to a low of 1.0788 during Monday’s European session.

Euro to US Dollar (EUR/USD) Exchange Rate Forecast: Dallas Fed Manufacturing Activity Data to Provoke Volatility

Although US data publications today are considered low impact in terms of the potential to stimulate market volatility, the EUR/USD exchange rate could still see changes in response to the Dallas Fed Manufacturing Index, especially if the data surprises. Oil prices and market sentiment will also be a factor in determining EUR/USD trade today.

Tuesday is likely to see EUR/USD movement although a complete absence of European economic data should see more attention given to changes in market sentiment and commodity prices. US data tomorrow, which includes Markit’s Services and Composite PMIs, should impact on the Euro to US Dollar (EUR/USD) exchange rate.

The Euro to US Dollar (EUR/USD) exchange rate climbed to a high of 1.0846 during Monday’s European session.