Euro US Dollar (EUR/USD) Exchange Rate Trends Sideways amid Risk-Off Mood
The Euro US Dollar (EUR/USD) exchange rate is trading in a narrow range today. A pullback in risk appetite may be buoying the pairing today. Rate hike bets for the European Central Bank (ECB) may also be limiting losses for EUR/USD.
On the other hand, persistent Federal Reserve rate hike bets may be keeping pressure on the exchange rate.
At time of writing the EUR/USD exchange rate is at around $1.0967, which is virtually unchanged from this morning’s opening figures.
Euro (EUR) Bolstered by Strong Service Sector Performance
The Euro (EUR) is edging higher today after mixed PMI data for April. EUR may be coming under pressure from evidence of a downturn in the Eurozone’s manufacturing sector.
The latest PMIs for the Eurozone painted mixed picture of the trading bloc’s economic performance. Output in the manufacturing sector fell deeper into negative territory, printing at 45.5 down from March’s reading of 47.3.
EUR found support from above-forecast performance in the trading bloc’s service sector, though. April’s PMI printed at 56.6 versus the forecast decline to 54.5. The data indicated that the service sector is supporting positive growth in the Eurozone.
The strong performance may also be bolstering bets on additional ECB rate hikes today. This could be preventing drastic losses for the single currency.
US Dollar (USD) Pushed Higher by Fed Bets
The US Dollar (USD) is climbing today ahead of key private sector PMIs later today. A cautious market mood may also be boosting the safe-haven ‘Greenback’ today.
Continued Fed rate hike bets may also be propping up USD today. Markets have largely priced in a 25bps hike in May, with small odds on an additional hike in June. Some analysts are convinced that May will be the peak of the Fed’s policy tightening, though.
James Knightley, Chief International Economist at ING, said:
‘Fed hawkishness indicates officials feel the need to do more to ensure inflation returns to target in a timely fashion, especially with consumer spending and jobs growth performing well in the first quarter. Recession risks are mounting and inflation pressures are moderating, which we think will result in the Fed reversing course in the fourth quarter.’
EUR/USD Exchange Rate Forecast: Will Core PCE Uptick Bolster USD?
Thursday’s first quarter GDP figures could weigh on USD if they print as forecast. Whilst the US economy is still forecast to have expanded in the first quarter of 2023, the rate of expansion is set to have slowed to 2%.
On Friday, the latest reading of the core PCE price index could bolster the US Dollar. The Fed’s preferred measure of inflation is set to edge higher, which may prompt even greater Fed rate hike bets.
The first half of the coming week will see only a handful of data releases for the Euro. On Monday, German business confidence is expected to edge higher to 93.4, up from its highest point since February 2022. EUR could rise as a result.
Friday will be the most significant day for the Euro. German GDP figures are set to indicate an expansion in the country’s economic in the first quarter of 2023. On the other hand, Eurozone growth is set to slow in Q1 2023. This mixed picture of the trading bloc’s economic strength could weigh on EUR.
Also on Friday, a forecast mild easing in Germany’s April inflation could dent confidence in the single currency. The expected downturn could also prompt cooler market expectations of additional ECB interest rate hikes.
