US-China Trade Tensions Put Pressure on Euro US Dollar (EUR/USD) Exchange Rate
As trade tensions between the US and China continued to escalate the Euro to US Dollar (EUR/USD) exchange rate struggled to find any particular traction.
With the Trump administration threatening to impose further tariffs on Chinese imports the global economy looks set to come under further pressure in the months ahead.
This does not bode well for the Euro (EUR), with German exports already showing signs of weakness thanks to the decline in global demand.
Confidence in the outlook of the Eurozone’s powerhouse economy remains muted in the wake of Monday’s underwhelming IFO business sentiment surveys.
As Aline Schuiling, Senior Economist at ABN AMRO, commented:
‘It suggests that Germany’s GDP growth, which came in at -0.2% QoQ in Q3 due to temporary problems in the car industry, bounced back in Q4, but nonetheless remained somewhat below the 0.5% growth rate that was recorded in Q2.
‘We think that the declines in the Eurozone PMI and Germany’s IFO index are in line with our below-consensus growth forecast for the Eurozone economy.’
US Dollar (USD) Vulnerable to Softening Consumer Confidence
This afternoon’s US consumer confidence index could put some pressure on the US Dollar (USD), with forecasts pointing towards a modest decline on the month in November.
Any signs of weakening domestic sentiment could take some of the wind out of the sails of USD exchange rates.
With the US-China trade spat looking set to rumble on for some time to come US consumers face a further increase in goods prices as tariffs on Chinese imports continue to bite.
Comments from Federal Reserve policymakers could also weigh on the US Dollar today, even though the odds of a December interest rate hike are unlikely to change.
As long as signs point towards the central bank adopting a more gradual pace of monetary tightening in 2019 this should offer the EUR/USD exchange rate a boost.
Weaker German Inflation to Weigh Heavily on Euro (EUR) Exchange Rates
Demand for the Euro could weaken further on Thursday if November’s German consumer price index fails to impress.
Forecasts point towards the headline inflation rate easing from 2.5% to 2.4% on the year, a dip which may weigh heavily on the single currency.
As European Central Bank (ECB) policymakers want to see evidence of sustained inflationary pressure any easing in the CPI is likely to dent the odds of a shift towards greater hawkishness.
Even though annual inflation remains above the ECB’s 2% target the more underwhelming nature of the monthly measure also limits the likelihood of the central bank pursing tighter monetary policy in the near future.
However, if both the German and Eurozone inflation data better expectations this could give EUR exchange rates a leg up ahead of the weekend.