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Euro US Dollar (EUR/USD) Exchange Rate Struggles as Eurozone Growth Continues to Slow

Softer Eurozone Growth Weighs Down Euro US Dollar (EUR/USD) Exchange Rate

As the first quarter Eurozone gross domestic product slowed in line with forecasts this left the Euro to US Dollar (EUR/USD) exchange rate on a weaker footing.

While the Eurozone continues to outpace some of its economic rivals markets are still disappointed to see the currency union losing some of its earlier momentum.

This is unlikely to encourage any particular shift towards hawkishness amongst European Central Bank (ECB) policymakers, leaving the odds of any imminent policy action rather muted.

With April’s raft of Eurozone manufacturing PMIs confirmed to have eased once again Euro (EUR) exchange rates naturally came under additional pressure.

As Chris Williamson, Chief Business Economist at IHS Markit, noted:

‘While the current pace of growth remains solid, the trend in the surveys in coming months will provide important clues as to the degree to which underlying demand may be waning and the extent to which policymakers should be concerned about the health of the economy.’

Upbeat Federal Reserve Forecast to Weaken EUR/USD Exchange Rate Further

The downside potential of the Euro to US Dollar (EUR/USD) exchange rate was still limited ahead of May’s Federal Open Market Committee (FOMC) policy announcement, however.

Confidence in the US Dollar (USD) eased on Wednesday morning as investors began to brace for the Federal Reserve’s latest commentary on monetary policy and the domestic outlook.

If policymakers adopt a more hawkish outlook, though, USD exchange rates could rally sharply overnight.

As long as investors see reason to bet on the prospect of interest rates rising three more times before the end of the year the mood towards the US Dollar looks set to improve.

On the other hand, the EUR/USD exchange rate could find a rallying point if there are any signs that the Fed is taking a more cautious approach to monetary policy.

USD exchange rates are unlikely to remain under any particular pressure for long, though, ahead of Friday’s US labour market data.

Euro US Dollar (EUR/USD) Exchange Rate Vulnerable to Underwhelming Eurozone Inflation

Further pressure could be in store for the Euro to US Dollar (EUR/USD) exchange rate on the back of April’s Eurozone consumer price index data.

Forecasts point towards headline inflation holding steady at 1.3% on the year, still some way behind the ECB’s 2% target.

Unless there are fresh signs of inflationary pressure within the currency union mounting EUR exchange rates could struggle to find any particular support.

Any downside surprise, meanwhile, would give investors additional incentive to sell out of the single currency in the near term.

With the ECB looking set to maintain its dovish policy bias for some time to come the Euro to US Dollar (EUR/USD) exchange rate is unlikely to make any significant gains in the absence of a major upside surprise.