The Euro to US Dollar (EUR/USD) exchange rate declined by more than 1% on Friday and is forecast to make more declines next week if economic data released in the US comes in better-than-expected.
The Euro to US Dollar Exchange Rate Touched a Weekly Low of 1.0891 in the week of June 1 to June 5
As the week came to a close the Euro weakened sharply against the US Dollar following the release of employment data which beat economist expectations. According to the Washington based Department of Labour, the US economy created 280,000 new jobs in May, beating expectations for a gain of 225,000. The preceding month’s figure was revised lower from 223,000 to 221,000.
‘The report showed that US labour market has tremendous momentum. All those factors that parked a weak jobs number in March were short-term. All those factors are looking more like a late-winter sniffle than a lingering illness,’ said economist Andrew Chamberlain on Friday.
Despite the strong nonfarm payrolls figure, the nation’s overall unemployment rate inched higher to 5.5%. The sturdy jobs data caused investors to raise their bets that the Federal Reserve will raise interest rates in September.
‘I think the jobs number puts September more firmly on track for a rate hike. As of Thursday it was probably closer to a 50-50 bet. Today, I think it’s more in lines of a 75% probability. It moves the needle in terms of expectations and gives air cover to the Fed,’ said Jim Caron from Morgan Stanley Investment Management.
With expectations for a rate hike boosted we can expect the US Dollar to remain higher against the Euro throughout the coming week. Sentiment towards the single currency is likely to be weighed upon by the Greek situation and the increased fighting in Ukraine.
The main data events for next week will be Tuesday’s Eurozone GDP Growth data. The region’s economy is expected to have expanded by 0.4% quarter-on-quarter and by 1% on an annual basis. Better than expected figures could see the Euro claw back some of its losses.
On Thursday the US could make further gains if US retail sales data adds to signs that the world’s largest economy is recovering at a stronger pace in the second quarter of the year. Economists are expecting sales to have increased by 0.9% in a monthly basis and by 1.23% on an annual basis.
If German balance of trade and industrial production data comes out positively on Monday the Euro could find support.
Uncertainty over the Greek situation is likely to continue to harm sentiment towards the Euro. Volatility will occur if a positive or negative event occurs in the negotiations between Athens and its creditors.
Investors will also be wary of the conflict in Ukraine. An escalation in the fighting is likely to raise worries that more economic sanctions will be imposed upon Russia by the West and its allies.