Euro US Dollar Exchange Rate on Track for Big Gains This Week
Despite the recent strength of the US Dollar (USD) and its advance attempts today, the Euro US Dollar (EUR/USD) exchange rate is on track for big gains this week. The Euro (EUR) was able to capitalise on US Dollar losses.
Since opening this week at the level of 1.1764, EUR/USD has seen a surge in demand and has regained much of the losses seen over the past month.
Last night, EUR/USD touched on a high of 1.1924 – the best level for the pair since late-March. While EUR/USD was not able to hold this best level, the pair still trends high in the region of 1.1892 at the time of writing on Friday.
Euro (EUR) Exchange Rates Slip from Highs amid Unexpected Drop in German Production
The Euro has capitalised on weakness in its rival, the US Dollar, for most of the week. It has also been benefitting from signs and hopes that the Eurozone’s coronavirus vaccination situation is finally improving.
Analysts expect the Eurozone economy will bounce back in the second half of 2020, despite the concerns around the bloc’s slow vaccination rollout.
However, demand for the Euro slowed towards the end of the week. Its rally against the US Dollar softened, and the shared currency found no support in the latest Eurozone data either.
This morning saw the publication of Germany’s February industrial production report. The data disappointed with a contraction of –1.6%, well below the expected growth of 1.5%.
According to Carsten Brzeski, Global Head of Macro at ING:
‘The drop in industrial production is somewhat surprising, given strong orders and confidence indicators. Besides some possible and temporary supply chain disruptions, the only other explanation for the disappointing performance can be the harsh winter weather in February.’
US Dollar (USD) Exchange Rates Steady after Week of Losses
Higher market demand for riskier assets, as well as continued dovishness from the Federal Reserve, accelerated a US Dollar selloff this week.
What started as selling the US Dollar from highs after a strong rally led to continued losses in the US currency, as markets pulled back on any hawkish Fed speculation.
The Federal Reserve’s latest meeting minutes and comments from Chairman Jerome Powell both showed that the bank was still nowhere near to taking a more hawkish tone on monetary policy. This made investors more eager to take risks and the safe US Dollar weakened.
After one of the US Dollar’s most bearish weeks of the year so far, the currency steadied slightly today and pushed EUR/USD back from its highs.
Euro US Dollar (EUR/USD) Exchange Rate Could Strengthen Further if USD Weakness Persists
The Euro’s rebound this week may have run out of steam for now, but if upcoming Eurozone data impresses and the US Dollar remains weak, EUR/USD may be in for continued strength.
Some analysts believe the US Dollar’s rebound rally has also run out of steam. This may mean the US Dollar’s potential for further gains is limited for now. According to Kit Juckes, Head of FX Strategy at Societe Generale:
‘In short, the energy has gone out of the Dollar’s first-quarter rebound, just as it has gone out of the bond sell-off,’
If the US Dollar is weak, the Euro may only need some strong Eurozone data to keep climbing.
Key Eurozone data due for publication in the coming week includes Eurozone retail sales results on Monday, followed by economic sentiment on Tuesday and industrial production on Wednesday.
Upcoming US data could be highly influential as well. US inflation data could influence Federal Reserve speculation if it surprises, and US retail sales data on Thursday could also influence the Euro US Dollar (EUR/USD) exchange rate.