Euro to US Dollar Exchange Rate Fails to Benefit from Eurozone PMI Data as US Bond Yields Climb
Stronger-than-expected Eurozone data on Monday was not enough to help the Euro to US Dollar (EUR/USD) exchange rate avoid losses at the beginning of the week.
Monday’s EUR/USD drop followed losses seen last week too. EUR/USD slipped from 1.2334 to 1.2290 last week and at the time of writing was trending near a fortnight low of 1.2227.
EUR/USD losses were somewhat limited by Monday’s Eurozone PMI results, which beat expectations in most major prints. However, the Euro (EUR) fell against a stronger US Dollar (USD) regardless as US 10-year bond yields rose.
Markit’s April PMI projections from the Eurozone indicated that the Eurozone’s economy was slightly more resilient than hoped this month, despite the bloc’s economic performance in March being disappointing.
For example, Germany’s manufacturing PMI was forecast to have slipped to 57.5 but instead only slowed slightly from 58.2 to 58.1.
Euro (EUR) Exchange Rate Losses Limited by Stronger Eurozone PMI Data
Most key PMI prints from Germany, France and the Eurozone overall beat market expectations according to Markit’s projections.
The Eurozone’s overall manufacturing figure slipped from 56.6 to 56.0, but the services print unexpectedly improved from 54.9 to 55.0 rather than sliding to the forecast 54.6.
Overall, the composite print remained at 55.2 rather than slowing to 54.9 as forecast.
According to Chris Williamson, Markit’s chief business economist;
‘It’s a good reading, it’s still encouraging,
It’s very much suggestive of the ECB being in territory where it should be thinking about unwinding stimulus — and certainly not adding to it.’
Still, while the data was enough to indicate that the Eurozone economy was moving in a direction appropriate for tighter monetary policy, ECB interest rate hike bets were largely unchanged by the results. The Euro remained unappealing versus the strengthening US Dollar.
US Dollar (USD) Exchange Rates Climb on Firming US Bond Yields
Despite a lack of particularly strong US data in recent sessions, a perceived thinning of political risks as well as rising US bond yields have left the US Dollar appealing.
On Monday, US Treasury 10-year bond yields neared 3% – a level not seen since 2014. This was due to expectations that US inflationary pressures were strengthening and the Federal Reserve interest rate was likely to see major rises in coming years.
However, the US Dollar’s rally is limited and could still be slowed or stopped by negative news or data, according to Stephen Innes from Oanda:
‘The Dollar momentum…is probably going to carry the way at least until the next negative headline comes out,’
Euro to US Dollar (EUR/USD) Forecast: European Central Bank (ECB) in Focus
The Euro to US Dollar (EUR/USD) exchange rate could recover some of its recent losses if the European Central Bank (ECB) takes a more optimistic than expected tone in its upcoming policy decision.
The ECB’s April policy decision will be held on Thursday and is not expected to see any changes in Eurozone monetary policy.
If the bank does show any fresh signs of hawkishness though, EUR/USD could bounce back from lows.
Until then, less influential but still notable Eurozone and US data is likely to influence currency movement.
Tuesday will see the publication of the Eurozone’s April business confidence survey results from Ifo, and US new home sales, followed on Wednesday by French consumer confidence.
If US data disappoints or US political uncertainties worsen, the strengthening US Dollar could slip again and shed some of its recent gains.
Even after the ECB meets on Thursday, the US Dollar could cause some late-week Euro to US Dollar (EUR/USD) exchange rate movement if US growth projection data surprises investors on Friday.