Euro US Dollar (EUR/USD) Exchange Rate Shrugs Off Falling Eurozone Confidence
A sharp dip in the Eurozone Sentix investor confidence index failed to dent the Euro to US Dollar (EUR/USD) exchange rate on Monday.
Although the index slumped from 19.2 to 9.3 in June the mood towards the Euro (EUR) still picked up at the start of the week, shrugging off the disappointing result.
Demand for the single currency remains elevated thanks to easing political worries, with the threat of fresh Italian elections averted for the time being.
While the new populist coalition looks set to clash with EU officials in the coming weeks over budget and migration policies this was not enough to weigh down EUR exchange rates for the time being.
Markets also largely dismissed fears of an impending US-EU trade war at this juncture, in spite of rising tensions and the distinctly protectionist policy approach of the Trump administration.
EUR/USD Exchange Rate Capitalises on US Factory Orders Contraction
With market risk aversion rather limited there was little to prevent the Euro to US Dollar exchange rate pushing sharply higher.
As investors continued to favour higher-yielding assets on Monday, in spite of doubts over the global trade outlook, the US Dollar (USD) came under renewed pressure.
A surprisingly sharp contraction in April’s factory orders figure added to the bearishness of USD exchange rates, suggesting that the US economy is in a less robust state of health.
Even so, this weaker showing is unlikely to deter the Federal Reserve from raising interest rates at its June policy meeting.
Recent signs from the economy have proved generally encouraging, as analysts at Nomura commented:
‘The pickup in manufacturing activity was broad-based, even beyond the ISM manufacturing report, and fits well with the June Beige Book which referenced an acceleration in manufacturing activity in recent weeks. Manufacturing surveys from the Dallas, Kansas City, New York, Philadelphia and Richmond Federal Reserve Banks all showed an improvement during May.’
If the ISM non-manufacturing composite index strengthens as forecast tomorrow the EUR/USD exchange rate may struggle to hold onto an uptrend.
Hawkish ECB Commentary Could Boost Euro US Dollar (EUR/USD) Exchange Rate Further
Commentary from European Central Bank (ECB) President Mario Draghi could give the Euro to US Dollar (EUR/USD) exchange rate an additional boost on Tuesday.
If markets see any signs that the ECB is shifting towards a more hawkish policy bias in the wake of last week’s stronger-than-expected Eurozone inflation data the Euro is likely to strengthen sharply.
However, there is still a risk that Draghi will maintain a more cautiously optimistic outlook with regards to the domestic economy and monetary policy.
Any weakening in the odds of the ECB returning to a tightening bias in 2018 would weigh heavily on EUR exchange rates.
On the other hand, with April’s Eurozone retail sales data forecast to show a solid acceleration on the month the downside potential of the Euro to US Dollar (EUR/USD) exchange rate could still prove limited.