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Euro US Dollar (EUR/USD) Exchange Rate Retreats as Gloomy Industrial Data Hangs over the Eurozone

EUR/USD Exchange Rate Parts with Gains on Disappointing Factory Figures

The Euro US Dollar (EUR/USD) exchange rate is relinquishing some of its recent gains this morning as markets react to the latest German and French production figures.

At the time of writing EUR/USD exchange rate has fallen by around 0.2% as the pairing steps back from the three-week high struck on Thursday.

Euro US Dollar (EUR/USD) Exchange Rate Pressured by Downturn in Industrial Production

The Euro (EUR) has enjoyed a significant upswing against the US Dollar (USD) this week, as the EUR/USD exchange rate was driven higher by European Central Bank (ECB) speculation.

However the single currency has been forced to part with some of its gains this morning, following the publication of some disappointing industrial production figures from France and Germany.

France’s data revealed domestic production contracted a further 0.5% in April, falling well short of forecasts of a 0.3% rise.

Meanwhile Germany’s figures were even bleaker, with the Federal Statistics Office reporting factory output growth plummeted from 1.7% to -1%, significantly worse than the more modest slowdown to 0.3% that had been expected by economists.

This is just the last signal that the Eurozone’s economy will have failed to rebound in the second quarter of 2018, following on from the disappointing start to the year, leaving the Euro on the back foot this morning.

Carsten Brzeski, chief economist for Germany at ING, said:

‘It’s almost like a hangover which does not want to go away. This morning’s macro data suggests that the German economy has had more trouble re-accelerating than previously thought.’

Moreover today’s lacklustre data will do little to inspire confidence in the Eurozone’s two largest economies less than a week ahead of the European Central Bank’s (ECB) latest policy meeting.

US Dollar (USD) Lifted by G7 Concerns

At the same time the US Dollar (USD) is trending higher this morning as investors flock to the safe haven currency ahead of the G7 summit in Canada.

Markets are concerned that this weekend’s summit is likely to be a heated affair, with observers fearing Donald Trump could escalate trade tensions with other countries is he decides to double down on his protectionist rhetoric.

Given the tone of Trump’s tweets last night it appears that investors may be right to fear such an outcome.

One Trump tweet read:

‘Please tell Prime Minister Trudeau and President Macron that they are charging the U.S. massive tariffs and create non-monetary barriers. The EU trade surplus with the U.S. is $151 Billion, and Canada keeps our farmers and others out. Look forward to seeing them tomorrow.’

EUR/USD Exchange Rate Forecast: Fed Rate Hike Inbound, How Many More Can We Expect in 2018?

Looking ahead, while some traders are bracing for the G7 summit this weekend the majority of investors appear focused on what impact the upcoming central bank meetings will have on the EUR/USD exchange rate.

In particular focus will the Federal Reserve’s rate decision on Wednesday, with the Federal Open Market Committee (FOMC) overwhelmingly expected to vote in an interest rate hike this month.

However the hike’s impact on the US Dollar may prove to be muted next week, with the majority of USD investors already expected to have priced in the move.

Markets will instead focus their attention on the bank’s forward guidance, with the US Dollar exchange rate expected to strengthen if an additional two hikes are hinted at by policymakers.

Meanwhile the ECB may also cause a splash this week as its own meeting is expected to see policymakers begin discussing when the bank with expatriate itself from its generous stimulus programme, with the Euro (EUR) likely to strengthen if it is hinted this could take place by the end of 2018.