The Euro to US Dollar (EUR/USD) exchange rate pared earlier gains after data showed that economic growth in the Eurozone expanded at a slower-than-forecast pace in the first quarter of the year. A separate report also showed that industrial production made an unexpected decline in March.
The Euro to US Dollar (EUR/USD) exchange rate reached a session high of 1.1362
Earlier in the session, the Euro had made gains against the US Dollar and other major peers as data showed that the French economy performed better than expected in the first quarter. French GDP grew by 0.6%, the highest growth rate seen in two years and beat forecasts for a gain of 0.4%. Italian GDP grew by 0.3%, beating forecasts for a gain of 0.2%. Taking the shine off those figures however was German GDP, which grew by 0.3% below expectations for growth of 0.5%.
‘Weak global trade is hitting German industry and if consumers start refraining from spending too, overall economic growth will decline rapidly. But there’s no reason to be miserable, the Euro is weak and interest rates are low, both of which point to somewhat solid growth in the coming quarters,’ said Thomas Gitzel, chief economist at VP Bank.
As the session, progressed positive sentiment towards the Euro began to soften as data showed that Greece re-entered recession. The Greek economy contracted by 0.2% in the first quarter, adding to the 0.4% contraction seen in the final quarter of 2014. The ongoing political uncertainty and fears of a ‘Grexit’ has hit demand in the country.
The Euro then gave up gains as Eurozone economic growth was weaker than expected in the first quarter as the disappointing German figure weighed. According to Eurostat, the region’s GDP rose by 0.4% on a quarter-on-quarter basis. Economists had been expecting growth of 0.5%. Year-on-year growth also missed expectations.
A separate industrial production report also weighed as it showed that monthly production fell -0.3% a sharp drop from the preceding month’s figure of 1.1% and was below forecasts for an unchanged figure.
The Euro could soften against the US Dollar later in the session if the latest US retail sales data comes in positively.
The Euro to Pound Sterling (EUR/GBP) exchange rate reached a session high of 0.7226
Against the Pound Sterling, the Euro managed to claw back some losses as the Bank of England cut its economic growth forecasts for the year.
The BoE now expects the UK economy to expand by 2.4%, down from the previous forecast for growth of 2.9%. The bank also cut its projections for 2016 and 1017 to 2.6% and 2.4% respectively.
Earlier in the session the Pound strengthened as UK unemployment was shown to have fallen to 5.5% and average earnings increased more than expected.