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Euro US Dollar (EUR/USD) Exchange Rate Drops to Three-Month Low as Risk-Off Mood Prevails

Euro (EUR) and US Dollar bills

EUR/USD Exchange Rate Fails to Climb as German Data Disappoints

Euro US Dollar (EUR/USD) trading remains bearish as today’s session opens, with German Industrial Production figures dropping 0.3% compared to last month.

At the time of writing, EUR trades at $1.1831, virtually unchanged from today’s opening rate.

Euro (EUR) Succumbs to Market Pressure as Investors Remain Bearish

The Euro (EUR) has failed to stage a recovery after yesterday’s setback over German factory orders and low economic sentiment. This morning’s industrial production figures have exacerbated the plight of the single currency, falling by 0.3% despite consensus forecast of a 0.5% rise.

While May’s industrial output grew on a yearly basis by 17.3%, production was still 5% lower than in February 2020, the month before coronavirus restrictions were imposed. The current MoM decline is thought to relate to supply-chain bottlenecks, particularly in the automotive industry.

Economist Thomas Gitzel, from VP bank, predicts that the supply crunch might temper some economists’ growth forecasts: ‘Economists who started the year with an overly optimistic growth forecast will have to apply the red pen’.

If this is the case, EUR is likely to trade low until positive data provides a stimulus – unless US Dollar (USD) sentiment sours, bolstering the Euro. The spread of the covid Delta variant across Europe and lagging vaccination rates exert additional downside pressure on the single currency.

US Dollar (USD) Trades Higher as Poor Data Prompts Risk-Off Trading

The US Dollar is holding onto yesterday’s gains at the hands of the low-printing US ISM Services PMI, which hit 60.1 as opposed to the 63.4 points expected. A fall in German industrial production this morning has helped to buoy the safe-haven currency in this pairing.

US Treasury Yields have also lent support to the ‘Greenback’, as the 10-year yield has lifted 10 basis points higher to 1.59% and the 2-year yield is up 4 points to 0.205%. This rise is thought to reflect the Fed’s fund rate projection of two increases to 0.6% by the end of 2023.

The US Dollar may gain further strength this evening from the publication of June’s Federal Open Market Committee (FOMC) minutes. If the minutes echo the hawkish tone of the Federal Reserve’s policy statement, USD sentiment will be supported; conversely, if concerns over employment are raised, the ‘Buck’ may lose some ground.

EUR/USD Trading Outlook: US Dollar to Trend Higher on Hawkish Fed Stance?

Further movement in the currency pairing today will be decided by this evening’s release of the FOMC minutes. USD investors trade cautiously as they wait for a clue as to the Federal Reserve’s next move.

Three weeks ago, the central bank stunned markets by saying that the debate about tapering down bond buys had begun and subsequently signalled two rate hikes in 2023. Yet economists are divided over whether such confidence will persist.

FOMC minutes have been known to balance out the original message; concerns over employment could stifle overarching hawkishness. Any hint of dovishness on the part of the Fed could dent ‘Greenback’ prospects later today.