EUR/USD Exchange Rate Drops as US Data Exceeds Expectations
The Euro US Dollar (EUR/USD) exchange rate crashed this afternoon to a 4-day low, as US Dollar (USD) tailwinds elevated the ‘Greenback’ while suppressing Euro (EUR) gains on account of the currencies’ strong negative correlation.
At the time of writing, EUR/USD is trading at $1.0506, down 0.7% from today’s opening levels.
US Dollar (USD) Firms on Upbeat Data, Favourable Market Conditions
The US Dollar began the day facing headwinds against several of its peers amidst risk-on trading conditions which drew support away from safe-haven investments.
Fluctuating gains and losses in the US stock futures capped USD upside while rumours circulated that aggressive policy tightening from the Federal Reserve was less likely amid weakening economic growth.
Buoying the ‘Greenback’, however, was strong durable goods data – which suggested that the US economy was resilient. Attracting safe-haven support to the US Dollar was weakening optimism over China’s reduction in Covid cases amid a recent tech sell-off.
In the afternoon, USD enjoyed further support as the country’s goods trades balance printed above expectations, reducing its deficit from $106.7bn to $104.31bn in May. This demonstrates an increase in exports as economic activity exceeded demand.
Despite a weak consumer confidence reading according to the US Conference Board, the ‘Greenback was able to retain its tailwinds, climbing against the Euro and other peers as the session wore on.
Euro (EUR) Dips Despite Hawkish ECB Comments
The Euro enjoyed upside against several peers in the first half of the European session, as European Central Bank (ECB) President Christine Lagarde extended yesterday’s hawkishness in her introductory address at day 2 of the Sintra Forum in Portugal.
Central bank policymakers are meeting to discuss their policy outlooks ahead and were expected to commiserate over high rates of inflation – Lagarde has so far struck a bold tone, however, claiming that the ECB maintains the option to act decisively.
Speaking of the fragmentation across EU country bond yields, Lagarde affirmed:
‘We will ensure that the orderly transmission of our policy stance throughout the euro area is preserved.
As Leonardo da Vinci said, every obstacle yields to stern resolve.’
The ECB President’s comments were accompanied by similarly hawkish input from policymaker Martins Kazaks, who said that he expected a 25 bps rate hike in July, while a 50 bps increase is the base case scenario in September: ‘though it may be worth looking at 50 bps rate hike in July.’
Nevertheless, the single currency succumbed to downside later in the session as strength in the US Dollar weighed upon EUR. Furthermore, German consumer confidence data fell from -26.2 in June to -27.4 for the month of July, adding to downside.
EUR/USD Exchange Rate Forecast: Central Bank Speeches to Direct Trade?
Looking ahead, several factors could alter the trajectory of the Euro US Dollar exchange rate tomorrow.
EU economic sentiment is expected to have fallen in June; on the other hand, the rate of German inflation looks to be slowing.
In the US, finalised growth data is forecast to reveal that the American economy contracted in Q1 – but hawkish speeches from the Fed’s Loretta Mester and Chairman Jerome Powell could avert headwinds.
At the third day of the Sintra Forum, both ECB and Fed speakers will address the assembly. Their speeches are likely to have some affect on EUR/USD depending on the similarity of the banks’ outlooks going forward.