Euro to US Dollar Exchange Rate Slumps as Eurozone Growth Outlook Dampens
While the persistent US Dollar (USD) rally has taken a break this week, the Euro to US Dollar (EUR/USD) exchange rate has been unable to capitalise on this and on Wednesday touched on a new 2018 low.
Since opening this week at the level of 1.1774, EUR/USD briefly climbed to a high of 1.1825. However, disappointing Eurozone PMI stats dragged EUR/USD lower on Wednesday, causing the pair to hit a low of 1.1693.
This was the worst EUR/USD level in half a year, since November 2017.
The primary reason for Euro to US Dollar (EUR/USD) exchange rate weakness since Monday has been underwhelming Eurozone ecostats, but concerns about Italy’s political outlook have put additional pressure on Euro (EUR) trade.
A strong outlook for the US Dollar could mean EUR/USD continues to fall, even during a week where many investors have chosen to briefly sell the US currency from its highs in profit taking.
Euro (EUR) Exchange Rates Tumble as Eurozone Growth Falls Below Expectations Again
Investors hoping for the Eurozone’s economy to continue strong growth levels like those seen by in 2017 were disappointed on Wednesday, as Markit’s May PMI projections indicated that the bloc’s economy continued to slow more than analysts expected.
In news that made markets even more doubtful that the European Central Bank (ECB) will hike Eurozone interest rates before 2020, most of Markit’s May figures fell short of expectations.
Markit’s German manufacturing PMI projection was expected to slip from 58.1 to 57.8, but instead fell to 56.8. Germany’s services and composite prints also came in lower than forecast.
Overall, the Eurozone’s manufacturing PMI came in at 55.5 and the services figure at 53.9. The bloc’s overall composite PMI projection was forecast to only slip slightly from 55.1 to 55 but tumbled to 54.1.
Economists noted that the data was certainly disappointing following last year’s strong growth, but did caution markets not to read too much into it due to a lot of holidays in May denting growth. According to Markit chief economist, Chris Williamson:
‘However, it’s also becoming increasingly evident that underlying growth momentum has slowed compared to late last year, especially in relation to exports. Hiring has consequently shown signs of being reined-in. …
Some of the fog will hopefully lift with the June PMI data, providing a clearer signal of the underlying growth momentum. Until then, however, it’s likely that the disappointing May survey results will rekindle some concerns regarding downside risks facing the euro area economy.’
US Dollar (USD) Exchange Rates Dip in Profit Taking Selloff
The US Dollar has still been able to gain against the Euro so far this week, but its gains likely would have been even stronger if not for the US currency’s paused rally.
On Monday, optimism about the US economic outlook and progress in US trade negotiations was strong enough for analysts to predict that there would likely be further gains ahead for the US Dollar in the mid to long-term.
This as well as a lack of fresh economic data prompted investors to sell the bullish currency from its best levels in a bout of profit taking.
The US Dollar’s current weakness is likely temporary, but EUR/USD has slipped regardless due to Eurozone concerns.
Euro to US Dollar Forecast: EUR/USD Losses May Persist
If the US Dollar rally is simply on pause, the Euro to US Dollar (EUR/USD) exchange rate may have missed its best opportunity to mount a recovery.
Unless upcoming Eurozone data is much more impressive or upcoming US data is disappointing, EUR/USD is on track to keep tumbling – especially when the US Dollar rally resumes.
Data due for publication towards the end of the week could still influence EUR/USD trade.
Thursday will see the publication of Germany’s June consumer confidence survey from GfK, French business confidence for May, and the nation’s final Q1 Gross Domestic Product (GDP) results.
US existing homes sales data from April and the Kansas Fed manufacturing index for May will be published on Thursday too.
Some late-week EUR/USD movement could be inspired by Friday’s German business confidence data, or US durable goods orders results.
Overall though, the Euro to US Dollar (EUR/USD) exchange rate is likely to continue to fall, especially with Italian political jitters still in focus for many Euro traders.