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Euro US Dollar (EUR/USD) Exchange Rate Wavers Ahead of ECB Rate Decision

Euro US Dollar

EUR/USD Exchange Rate Fluctuates as German Unemployment Falls

The Euro US Dollar (EUR/USD) exchange rate is trading in a narrow range this morning in the wake of positive employment data from Germany, revealing the lowest number of unemployed people since March last year. Investors are hesitant to place any bullish bets ahead of the European Central Bank (ECB)’s interest rate decision later today.

At the time of writing, EUR/USD is trading at $1.1588, virtually unchanged from today’s opening levels.

Euro (EUR) Trends Down Despite Upbeat German Data

The Euro is falling against its peers this morning despite a decline in German unemployment and a risk-on market mood. Economic sentiment in the Eurozone rose above expectations; although the bloc’s final consumer confidence reading fell to -4.8 from -4 in September, in line with an earlier release.

Headwinds come as carmakers Volkswagen and Stellantis report financial hits in the third quarter of 2021. Operating profits at Volkswagen fell by €500m, while Stellantis reports a 14% decline in revenues: both companies are struggling with the global shortage of computer chips.

Car companies around the world have been badly hit by the shortage of chips, which are made from semiconductors: the problem is particularly acute as manufacturers develop their range of electric cars.

Exacerbating bearish trading, investors doubt that the ECB will react to rising inflation in the same way as other international banks this afternoon. The ECB is unlikely to change its rates at the moment; although it may reveal a revised economic outlook.

ECB President Christine Lagarde gave a speech on 16 October in which she reiterated that ‘the ECB is committed to preserving favourable financing conditions for all sectors of the economy.’

She gave a caveat, however, that the end of the pandemic is drawing closer, pledging to keep forward guidance and monetary policy supportive of stabilising inflation at 2% over the medium term.

US Dollar (USD) Subdued as GDP Expected to Fall

The US Dollar (USD) is trading down today, as the GDP growth rate for the third quarter is expected to plummet to 2.7%, from 6.7% last quarter.

If GDP prints as forecast, it would be the slowest pace since a record 31.2% contraction in 2020. According to the Atlanta Federal Reserve, today’s growth could be even lower than expected, at 0.2%.

The spread of the coronavirus delta variant, global supply constraints, materials and labour shortages and soaring prices are all considered to have weighed upon both production and consumption.

Household spending, meanwhile, is seen stalling on account of autos and travel; inventory is expected to be weak due to goods shortages, while exports fell and residential fixed investment may have dragged on growth.

Balancing downbeat expectations, the economic slowdown is expected to be short-lived, with US GDP likely to accelerate in the final quarter of 2021 into 2022. Also capping USD losses, US Treasury bonds yields are rising, having fallen yesterday from earlier highs.

Euro US Dollar Exchange Rate Forecast: Central Banks in Focus

Looking ahead, investors are hoping that this afternoon’s announcement from the ECB may hint at a shift in monetary policy stance from the dovish central bank, as inflationary pressure persist. However, it is widely believed that any key changes will be reserved for the December announcement.

USD investors are also eyeing this afternoon’s data in the hopes that GDP will print higher than forecasts. Downbeat data may raise concerns that US economic growth is slowing, which may in turn influence the Fed’s stance on tightening monetary policy; meanwhile, an upbeat release would make imminent tapering more likely.