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Euro to US Dollar (EUR/USD) Exchange Rate Boost Forecast on Wider Eurozone Trade Surplus


Euro US Dollar (EUR/USD) Exchange Rate Muted After Weaker-Than-Forecast Eurozone Construction

The Euro to US Dollar (EUR/USD) exchange rate remained under pressure in spite of a modest acceleration in Eurozone construction output on the month.

As the improvement fell short of forecast, clocking in at 0.8% rather than 2.2%, this prompted fresh unease over the outlook of the domestic economy.

Investors remain jittery over the prospect of the Eurozone economy losing momentum in 2018, even though the currency union is still expected to outpace its economic rivals.

With the European Central Bank (ECB) looking set to leave monetary policy on hold for some months to come the upside potential of Euro (EUR) exchange rates remains limited.

Political developments in Italy also remain a drag on demand for the single currency as the populist Five Star Movement and the League continue to negotiate on forming a government together.

Mixed US Data Fails to Benefit EUR/USD Exchange Rate

Although US data has been somewhat mixed in recent days this was not enough to help the Euro to US Dollar (EUR/USD) exchange rate make gains.

While April’s housing starts and building permits showed a fresh contraction on the month this was offset by the more encouraging nature of the latest industrial and manufacturing production figures.

The US Dollar (USD) strengthened on the back of the better-than-forecast industrial production data, with confidence in the underlying health of the world’s largest economy improving.

Even so, doubts remain over the US economy’s ability to shrug off the impact of the Trump administration’s approach to trade and the international community.

As analysts at Nomura commented:

‘Although incoming business surveys such as April ISM and May Empire State surveys point to continued optimism, trade concerns remain as a risk, which could exert downward pressure on business confidence.’

Stronger German Price Indexes Forecast to Support Euro US Dollar (EUR/USD) Exchange Rate

A rallying point could be in store for the Euro to US Dollar (EUR/USD) exchange rate ahead of the weekend if the Eurozone trade surplus widens in line with forecasts.

Signs of continued strength within the Eurozone economy would give investors fresh incentive to pile into the Euro on Friday.

Focus will also fall on the latest German wholesale and producer price index figures, which may point towards increased inflationary pressure within the Eurozone’s powerhouse economy.

If price pressures show fresh signs of building this is likely to give EUR exchange rates a boost.

However, anything less than a sharp increase in prices is unlikely to be enough to alter the current policy bias of the ECB.

Confidence in the US Dollar, meanwhile, could strengthen on the back of commentary from Federal Reserve policymakers.

If the Fed looks set to pursue a more aggressive pace of monetary tightening over the coming months the Euro to US Dollar (EUR/USD) exchange rate is expected to lose further ground.