US Home Sales Plunge Fails to Boost Euro US Dollar (EUR/USD) Exchange Rate
Confidence in the underlying health of the US economy continued to deteriorate today as May’s new home sales figure saw a surprise plunge of -7.8%, leaving the US Dollar (USD) on a weaker footing.
Investors were also discouraged by an unexpectedly sharp decline in the latest US consumer confidence index, which dropped from 134.1 to 121.5 in June.
This suggests that the outlook of the US economy has weakened, with lower levels of consumer spending likely to limit growth in the second quarter.
However, the weakness of this US data was not enough to give the Euro to US Dollar (EUR/USD) exchange rate a boost today.
An easing in the Spanish producer price index limited the appeal of the Euro (EUR), adding to bets that the European Central Bank (ECB) could cut interest rates sooner rather than later.
Muted German Consumer Confidence to Limit Euro (EUR) Exchange Rate Upside
The mood towards the single currency could sour further on Wednesday with the release of July’s German GfK consumer confidence index.
With forecasts pointing towards a minor decline on the month this could exacerbate worries over the outlook of the Eurozone’s powerhouse economy.
As long as signs suggest a trend of weakness within the German economy EUR exchange rates are likely to remain on the back foot in the near term.
Given the already dovish outlook of the ECB any fresh evidence of an economic slowdown looks set to weigh heavily on demand for the Euro.
On the other hand, a resilient showing from the confidence index could offer the EUR/USD exchange rate a rallying point if sentiment appears to improve.
US Dollar (USD) Vulnerable to Further Interest Rate Cut Hints
Comments from Federal Reserve Chair Jerome Powell may see the US Dollar shedding additional ground overnight, meanwhile.
If Powell maintains a dovish stance on monetary policy this would support bets that the Fed is on track to cut interest rates in July.
Although markets have already effectively priced in an imminent rate cut USD exchange rates could trend lower in the wake of Powell’s commentary.
May’s durable goods orders figure may offer the US Dollar a rallying point, however, as investors anticipate a solid rebound in demand on the month.
Even if the index remains in negative territory this could weigh on the EUR/USD exchange rate on Wednesday.
Optimism in the economic outlook may still prove limited, though, as analysts at Danske Bank noted:
‘US growth seems to have peaked, inflation expectations and actual inflation are low and trade uncertainty may start weighing on the economy. Without more easing, it also increases the likelihood of sub-trend growth or perhaps even a forthcoming recession.’
Without the support of positive data the US Dollar looks vulnerable to further selling pressure in the days ahead.