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Euro US Dollar Exchange Rate Struggles Around 4-Month-Worst Despite Stronger German Confidence

Euro US Dollar Exchange Rate Flounders as USD Remains Appealing 

Investors remained hesitant to buy the Euro (EUR) at the end of the week, so the Euro US Dollar (EUR/USD) exchange rate continued to trend near its worst levels in months. Next week’s key data could cause a shift in movement if it surprises investors however. 

Since opening this week at the level of 1.1945, EUR/USD has been trending with a downside bias as the US Dollar (USD) capitalises on a weak Euro.  

The world’s most-traded exchange rate shed a huge cent and a half throughout the week. Yesterday, EUR/USD touched on a low of 1.1762 – the worst level for the pair since the beginning of November. 

At the time of writing, EUR/USD trends in the region of 1.1778. Unless upcoming Eurozone data impresses or the bloc’s coronavirus outlook improves, the Euro to US Dollar exchange rate may struggle to recover. 

Euro (EUR) Exchange Rates Struggle despite Forecast-Beating Data 

Investors continue to see little reason to buy the Euro lately. The Eurozone outlook continues to be overshadowed by concerns over the coronavirus pandemic, and recent Eurozone data has done little to offset that. 

Today’s German Ifo business confidence data actually beat forecasts. The expectations print in particular saw an optimistic figure of 100.4. 

The data helped the Euro to hold slightly above its worst levels. However, compared to a strong US Dollar, the Eurozone outlook remains too gloomy to support bigger Euro gains. 

Markets remain concerned about the Eurozone’s slow coronavirus vaccination rollout. 

US Dollar (USD) Exchange Rates Continue to Climb on Diverging Outlooks 

The US Dollar saw a long period of weak performance, but markets have recently been surprised by rising signs that the US economic outlook is more optimistic than that of Europe’s. 

The US Dollar has been recovering on a combination of fresh coronavirus pandemic uncertainty and lockdown fears in some major economies, combined with continuous strength in recent US data. 

According to Vincent Manuel, Chief Investment Officer at Indosuez Wealth Management: 

‘We left 2020 with the validation of the consensus view the Dollar would weaken 

We have woken up in 2021 facing the reality that the US is growing much quicker than Europe… so we have a massive divergence’ 

Euro US Dollar (EUR/USD) Exchange Rate Could Struggle Without Improving Eurozone Outlook 

For now, the US Dollar looks likely to remain broadly appealing due to the US economy’s comparatively higher optimistic outlook. 

In fact, if upcoming Eurozone data disappoints and US data continues to impress, markets could remain hesitant to take risks and the safe US Dollar could keep climbing against the Euro. 

The best chance the Euro has at a sustained recovery is if the Eurozone’s coronavirus outlook becomes more optimistic. If the bloc sees a ramp up of vaccinations or lower infection rates, these could both support the Euro. 

Upcoming Eurozone data could also boost the Euro if it impresses. Eurozone confidence data and inflation, as well as German unemployment and retail stats, could be influential for the Euro next week. 

As for the US Dollar, it is likely to remain fairly appealing unless there is a notable rise in risk-sentiment.  

Significant US data such as US Non-Farm Payroll results could also cause Euro US Dollar (EUR/USD) exchange rate movement next week.