Stronger German Sentiment Unable to Shore up Euro US Dollar (EUR/USD) Exchange Rate
A solid improvement in September’s German ZEW economic sentiment survey failed to push the Euro to US Dollar (EUR/USD) exchange rate higher.
While the Eurozone’s powerhouse economy demonstrated signs of increased confidence the headline index remains in negative territory at -10.6, underlining persistent worries regarding the domestic outlook.
An improvement in the corresponding Eurozone sentiment index also failed to boost the Euro (EUR) against its rivals, with the EUR/USD exchange rate under pressure as an early morning spike faded.
Commenting on the day’s data, Oliver Rakau, Chief German Economist at Oxford Economics, noted:
‘This tells the ECB that Eurozone growth is stabilising, but not accelerating back to last year’s buoyant levels. However, the updated Eurozone labour market data shows that wage growth is accelerating strongly, giving the green light to end QE at the end of 2018.’
Even so, as markets brace for Thursday’s European Central Bank (ECB) announcement the potential for a Euro recovery looks limited.
US Dollar (USD) Exchange Rates Lose Traction as Trade Worries Ease
The general improvement in market risk appetite offered some support to the Euro to US Dollar (EUR/USD) exchange rate, meanwhile, as safe-haven demand declined.
This left the US Dollar (USD) on a largely weaker footing on Tuesday morning, diminishing in response to reports of plans for a second US-North Korea summit.
USD exchange rates struggled to sustain last week’s bullish run even as the NFIB small business optimism index showed an improvement in August.
While business confidence strengthened on the month this was not enough to keep demand for the US Dollar from easing.
If Thursday’s US consumer price index data shows a weakening of inflationary pressure on the year the EUR/USD exchange rate could find a solid rallying point.
Weak Eurozone Industrial Production to Limit Euro US Dollar (EUR/USD) Exchange Rate
July’s Eurozone industrial production data is unlikely to encourage any significant gains for the Euro to US Dollar (EUR/USD) exchange rate in the near term.
Forecasts point towards another monthly contraction in production volumes, highlighting the economy’s continuing struggle to recover its lost momentum.
Further evidence that the Eurozone is struggling in the face of global trade tensions and an increasing wave of protectionism would leave the Euro vulnerable to further downside pressure.
As anticipation mounts for the latest commentary from the ECB the mood towards the single currency looks set to sour.
Unless investors see signs that the central bank is taking a more optimistic view on the domestic outlook, and remains prepared to tighten monetary policy in the months ahead, EUR exchange rates could tend lower.
A more hawkish performance from ECB President Mario Draghi may still encourage the Euro to US Dollar (EUR/USD) exchange rate to strengthen, however.