Euro (EUR) Strong as GDP Figures Better Estimates
Eurozone Gross Domestic Product figures for the final quarter of 2015 have printed marginally above forecast, strengthening the EUR-USD exchange rate. Preliminary figures for quarterly growth showed the 0.3% expansion expected, while yearly growth printed at 1.6%, ten basis points higher than the forecasts.
Euro (EUR) Strong Ahead of Eurozone GDP Figures
The Euro is making strong gains this morning thanks to anticipation surrounding the release of preliminary Gross Domestic Product figures for the final quarter of 2015. Both quarterly and year-on-year (YoY) GDP is expected to hold steady at the current rate of growth. Strong industrial production figures for January have gone a long way towards undoing the damage of yesterday’s decline in factory orders and weak investor confidence.
Low Business Confidence Compounds Euro Weakness
The March issue of the Sentix Eurozone Investor Confidence Index has shown a dip in sentiment, contradicting predictions of a steady rise. The overall index slid from 6.0 to 5.5, thanks to a slide in attitude towards the current situation, while the drop was softened by a slight rise in expectations. The index currently rests at its lowest level since April 2015.
Another round of weak factory data from Germany has softened the Euro (EUR) today. Meanwhile, after the US Dollar (USD) ended last week’s session having made strong losses, a recovery today is keeping the EUR/USD exchange rate bearish.
Fresh fall in German Factory Orders Weakens EUR/USD Exchange Rate as Stimulus Fears Heighten
Weak factory orders have contributed to today’s Euro weakness, with another fall and a significant -1.6% drop in domestic orders suggesting that the Eurozone’s largest economy is slowing. The figures prompted the German Finance Ministry to comment that, ‘expectations in industry have become considerably overcast and signal only a modest economic upswing.’
The news again creates a picture of an economy in need of additional stimulus, with investors believing the Thursday meeting of the European Central Bank (ECB) will yield a cut to the deposit rate, an increase in monthly asset purchases, or both.
Economists are not widely convinced of the effectiveness of this tactic, with German Finance Minister Wolfgang Schäuble recently claiming ‘the room for monetary policy is very limited over the last couple of years, and even the room for fiscal space is more limited than it used to be, because we have a level of public indebtedness which is higher than it was at the end of the Second World War.’
The Euro to US Dollar (EUR/USD) exchange rate is currently trending around 1.0956.
US Dollar to Euro (USD/EUR) Exchange Rate Making Bullish Recovery ahead of Fed Speeches
After ending last week with two days of losses, the US Dollar is making a strong recovery today. On Thursday, some disappointing data and a cautious speech from Dallas Fed President Robert Kaplan saw the ‘greenback’ (USD) tumble. Kaplan noted strong downside risks to the global economy and warned that looser monetary policy was the better choice for the Fed at the current juncture.
In prepared remarks released before the speech, Kaplan explained, ‘While I believe that excessive accommodation carries a cost in terms of distortions and imbalances in hiring, asset allocation and investment decisions, I also believe that, at this juncture, the Fed needs to show patience in decisions to remove accommodation.’
Friday’s US Dollar weakness came from disappointing data, although the Non-Farm Payroll figures had printed much better-than-expected. However, the accompanying wage growth figures showed a significant slowdown in earnings. The data suggested that inflationary pressures would remain weak, giving a strong likelihood that the Federal Open Market Committee (FOMC) would keep rates on hold during the next policy meeting.
Today, the US Dollar is recovering on correctional trading, helped by the Euro weakness and anticipation of speeches by Federal Reserve Presidents Lael Brainard and Stanley Fischer.
The US Dollar to Euro (USD/EUR) exchange rate is currently trending between 0.9091 and 0.9133.
Euro to US Dollar (EUR/USD) Exchange Rate Forecast: Fed Officials to Speak Later
While Brainard has been dovish in the past, warning that future rate hikes should follow a gradual pace, Fischer has recently been more hawkish, suggesting that the growing global uncertainty won’t have a notable impact upon the US economy. Investors will be looking for more of the same optimism today. There is little Eurozone data left to provoke exchange rate movement today, although the likelihood of additional economic stimulus from the ECB could continue to drag on rates.
The Euro to US Dollar (EUR/USD) exchange rate is currently trading between 1.0943 and 1.0997.