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Euro US Dollar (EUR/USD) Exchange Rate Climbs as US-China Trade Relations Worsen

Euro US Dollar currency forecast

Eurozone Manufacturing Disappoints – EUR/USD Exchange Rate Unperturbed

The Euro US Dollar (EUR/USD) exchange rate climbed higher this morning, bolstered by worsening trade relations between China and the US and a slightly below-forecast US manufacturing print on Monday.

The bloc experienced a disappointing data release of its own on Tuesday, however, with the latest Markit IHS manufacturing purchasing managers’ index (PMI) revealing a broad slowdown across ‘all nations’.

The PMI reading was finalised t 56.6 in March, down from February’s result of 58.6 and marking the biggest fall since June 2011.

This was largely due to the appreciating value of the Euro and the resulting increase in prices making the bloc’s exports less attractive for buyers.

Chris Williamson, Chief Business Economist for the survey compiler argued that markets should not be too worried about this fall, however, stating:

‘We should not be too worried by the fall in the PMI as some moderation in the pace of growth from the surge seen at the turn of the year was inevitable. The overall pace of growth nevertheless remains robust by historical standards…’.

As a result, the single currency remained largely unperturbed; continuing to trade higher against the ‘Greenback’.

US-China Trade Relations Flounder – US Dollar (USD) Exchange Rates Fall

The US Dollar (USD) pared recent gains yesterday on news that China has imposed extra tariffs on US products, escalating the dispute between two of the world’s largest economies.

China applied tariffs reaching up to 25% on 128 US products including frozen pork, wine and various fruits and nuts in response to US duties on aluminium and steel.

These tariffs have been expected for some time, however, and only account for US$3bn in US goods – a miniscule response compared to the US tariffs targeting some US$60bn in Chinese goods.

Nonetheless, markets abhor trade intervention and the more skittish investors quickly moved away from the US Dollar on concerns that a tit-for-tat response will eventually escalate into a global trade war, potentially curbing US economic growth.

In other news, yesterday’s US Manufacturing PMI readings fell slightly short of expectations despite remaining near record-highs, though markets were far more concerned with trade news between the two superpowers.

Euro US Dollar (EUR/USD) Exchange Rate Forecast: Eurozone Inflation in the Spotlight

The Euro US Dollar (EUR/USD) exchange rate could see greater volatility as the week progresses, depending on the performance of the Eurozone’s unemployment and consumer price inflation readings, (due Wednesday).

Whilst markets do not expect the European Central Bank (ECB) to move hawkishly this year, a poor inflation estimate could further cement this dovish standing, potentially leaving the single currency floundering.

In other news, markets will be keen to assess the US average earnings figures for March, due on Friday.

If average hourly earnings pick-up as expected then it could propel the US Federal Reserve towards 4 rate hikes this year, rather than 3, an event that could eclipse trade-war fears and give the US Dollar a notable boost.