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Euro US Dollar (EUR/USD) Exchange Rate Rangebound despite Upbeat German Economic Signs

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Euro US Dollar (EUR/USD) Exchange Rate Narrows amid Increasing German Industrial Production

The Euro US Dollar (EUR/USD) exchange rate is trading in narrow bounds this morning, as upbeat German industrial data underpins EUR.

At the time of writing, EUR/USD is trading at around US$1.0902, showing little movement from the morning’s opening rates.

Euro (EUR) Underpinned by Upbeat German Data

The Euro (EUR) is being underpinned this morning by positive data releases from Germany. As the Eurozone’s largest economy, the sharp increase in industrial production could be providing support.

Economists had forecast industrial production to increase by 0.1% in February, whereas activity shot far beyond the expectation. By printing at 2%, it provides a further indication that the German economy could be recovering.

Carsten Brzeski, the Global Head of Macro at ING, explained:

‘German industry seems to have woken up from hibernation and has by now more than made up for the sharp plunge in December. The strong rebound seems to be driven by the reopening of China, strong activity in the automotive sector and a more general ongoing reduction of backlogs.’

This points to the German economy appearing able to overcome headwinds prompted by the Covid pandemic, alongside the Russian invasion of Ukraine. However, with the Ukraine-Russia war continuing to roll on, it remains to be seen if this results in a clear improvement.

US Dollar (USD) Consolidates Overnight Gains amid Diminished Fed Rate Hike Bets

The US Dollar (USD) is likely consolidating its gains from yesterday this morning, leading to muted trade.

After the market mood soured, the ‘Greenback’ climbed against most major peers. However, reducing rate hike bets could be adding headwinds.

The US labour market has shown signs of cooldown over the week, leading to the expectation that the Federal Reserve may slow their pace of tightening.

Jeffrey Fuhrer, the Director of Research at Econofact, commented:

‘It’s time for the Fed to pause and gauge the effects of their moderately restrictive policy – or to consider reducing rates later this year, as financial market participants expect.’

However, the market mood remains mixed. Geopolitical tensions could be playing a roll here, as tensions between China and the US simmer over Taiwan. This could be providing a cushioning for the US Dollar, preventing it from making clear losses.

EUR/USD Exchange Rate Forecast: Non Farm Payrolls to Dent USD?

Looking ahead for the US Dollar, tomorrow brings the release of the latest non farm payrolls data. Economists are forecasting that the number of jobs created will have fallen from 311,000 to 240,000.

If the data prints in line with forecasts, it could weigh on the ‘Greenback’ by pointing to signs of a cooling labour market. In turn, this may prompt USD investors pare back their rate hike bets. However, it has the possibility of stoking fears over the health of the US Economy, which would have global implications. This could cause the market mood to sour, which would bring safe-haven flows to USD.

For the Euro, data releases are thin on the ground for the rest of the week. Because of this, the single currency may trade in line with its correlation to the ‘Greenback’. If the US Dollar strengthens, the Euro could weaken.