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Euro US dollar (EUR/USD) strengthens despite bleak German outlook

Sheet of US Dollar bills

Euro US dollar (EUR/USD) firms despite lacklustre German optimism

The euro US dollar (EUR/USD) exchange rate is edging higher this morning amid signs of sluggish German recovery and US dollar (USD) weakness.

At the time of writing the EUR/USD exchange rate is trading at $1.0883, virtually unchanged from this morning’s opening rate.         

Euro (EUR) fluctuates following dismal German data

The euro (EUR) is mixed against its major rivals this morning following the latest GfK consumer confidence report from Germany.

The index printed slightly above expectations of -27.9, edging higher to -27.4 in April. The data marked a slight improvement from March’s downwardly revised -28.8, providing the highest reading since the start of the year.

However, while the index remained deeply negative, it continues to hold concerningly close to February’s eleven-month low, signalling that while morale be on the rise, it could well be a sluggish ascent.

While German economic sentiment appears to be heading in the right direction, signs that that the Eurozone’s largest economy may face a prolonged recovery period could well dampen EUR exchange rates as the session continues.

NIM consumer expert, Rolf Burkl, commented:

‘The recovery in the consumer climate is slow and very sluggish. Real income growth and a stable job market themselves provide good conditions for rapid improvement in consumer sentiment, but there’s still a lack of planning security and optimism about the future among consumers.’

Meanwhile, apparent USD weakness appears to boost EUR against the ‘Greenback’, due to the currency pairing’s negative correlation.

US dollar (USD) slumps ahead of market moving releases

The US dollar is facing headwinds this morning ahead of market moving data due for release later today.

As investors await this afternoon’s macroeconomic releases, surmounting expectations of Federal Reserve interest rate cuts in the summer months appear to sour USD sentiment. Despite hawkish rhetoric from rate-setter Raphael Bostic yesterday, Fed rate cut expectations remain largely unchanged ahead of this week’s high-impact releases.

Steve Englander, an economist at Standard Chartered, noted that Fed Chair Jerome Powell now strives to achieve timely rate cuts in the face of opposition from his fellow policymakers, perhaps undermining policymakers’ hawkish dissent in recent days.

Englander stated:

‘12 June FOMC is the most likely date for a cut, but we see a slim chance that 1 May will be live. We now think Fed Chair Powell will accept dissents in order to push through timely cuts.’

Elsewhere, an increasing appetite for risk serves to further undermine the safe-haven ‘Greenback’, as investors favour its riskier peers.

Euro US dollar exchange rate forecast: ECB speech to fuel rate cut bets?

Looking ahead, a speech from the European Central Bank’s Chief Economist Philip Lane could drive EUR volatility this evening. Should Lane’s commentary err on the side of dovish, further talks of monetary loosening in the euro bloc could serve to cap the common currency’s upside potential.

For the US dollar, the latest initial jobless claims in the US are due for release on Thursday. Newly unemployed American citizens claiming benefits are due to have increased during the week ending March 23.

Amid growing concerns about the strength of the US labour market, a further rise in jobless Americans could weigh on USD exchange rates.