Although Greece finally reached an agreement with its creditors to unlock the next tranche of bailout funds it was not long before the Euro softened once again.
With fierce opposition likely to meet the proposed tax reforms and pension cuts, and only the promise of a discussion on debt relief, the Greek bailout saga is still far from over.
The first quarter Eurozone gross domestic product strengthened in line with expectations, meanwhile, with growth accelerating from 0.4% to 0.5% on the quarter.
However, there was fresh disappointment from March’s producer price index, which fell short of forecasts to contract -0.3% on the month.
This added weight to the European Central Bank’s (ECB) doubts that the currency union is experiencing a meaningful uptick in inflation.
As a result the likelihood of policymakers moving towards a more hawkish outlook seemed to weaken, putting downside pressure on the single currency.
Comments from ECB President Mario Draghi could thus provoke further volatility for the Euro US Dollar exchange rate on Thursday, with rhetoric likely to remain dovish.
Demand for the Euro has also weakened in anticipation of the final run-off in the French presidential election, with investor jitters set to intensify ahead of Sunday’s vote.
As analysts at HSBC noted:
‘Opinion polls, that called the first round of the presidential election correctly, suggest a clear win for independent centrist Emmanuel Macron. Not one poll has predicted Marine Le Pen will be elected. But polls gauge people’s preferences at a point in time and do not aim to predict how public opinion might change.’
Increased market risk aversion helped to boost the US Dollar, meanwhile, even as expectations remained limited ahead of the latest Federal Reserve policy meeting.
While no change in monetary policy seems likely at this juncture investors are keen to gauge the current outlook of the Federal Open Market Committee (FOMC).
If policymakers offer a more hawkish assessment then the EUR USD exchange rate could trend lower, with the odds of a June interest rate hike likely to increase.
Should the mood around the meeting appear less positive, on the other hand, the ‘Greenback’ may struggle to maintain its bullishness in the near term.
Friday’s labour market data could provoke further volatility for the US Dollar, particularly if the unemployment rate rises from 4.5% to 4.6% in line with forecasts.
However, if wage growth picks up the mood may improve, with the US labour market still seeming near the point of full employment.
Current EUR USD Interbank Exchange Rates
At the time of writing, the Euro US Dollar exchange rate was trending lower at 1.09. Meanwhile, the US Dollar Euro exchange rate was making gains at 0.91.