The mood towards the Euro continued to improve after the Eurozone trade surplus widened further than forecast, highlighting continued economic strength within the currency union.
While the latest Italian growth data proved disappointing this was not enough to weigh on the appeal of the single currency, as the first quarter Eurozone gross domestic product remained solid.
As the sense of political risk faded further in the wake of a strong showing from Angela Merkel’s CDU party in a German state election over the weekend the Euro US Dollar exchange rate has equally benefitted.
Altogether this painted a more positive picture for the outlook of the Eurozone, prompting the Euro to trend sharply higher across the board.
However, as Bert Colijn, Senior Economist at ING, noted:
‘Even though growth has remained strong despite political uncertainty, structural factors continue to hold back Eurozone trend growth. As the output gap will be closed in a year or two, it is important to see whether this growth pace can continue when “catch-up growth” ends. It seems that this is difficult as trend growth has slowed over the crisis years.’
Some volatility could be in store for the single currency if the finalised April Eurozone consumer price index report indicates any weakening in inflationary pressure.
With the European Central Bank (ECB) maintaining a decidedly cautious view on monetary policy the upside potential of the EUR USD exchange rate may be limited in the near term.
Comments from ECB President Mario Draghi could dent the Euro on Thursday, assuming that the policymaker reiterates that the central bank sees no need to tighten monetary policy at this juncture.
A disappointing Empire manufacturing index undermined confidence in the health of the US economy at the start of the week.
With risk appetite also boosted by China’s ambitious infrastructure investment plan the appeal of the US Dollar was rather limited.
Confidence in the Trump administration faltered, meanwhile, in response to reports that highly classified information had been shared with the Russian foreign minister in the White House, bolstering the EUR USD exchange rate further.
Weaker-than-expected US housing starts and building permits figures for April added to the bearish mood of the ‘Greenback’, pointing towards a continuing slowdown within the domestic housing market.
While this is not enough to significantly lower the odds of the Federal Reserve raising interest rates in June the likelihood of an imminent tightening move has lessened somewhat.
However, if this week’s jobless claims data points towards a steady labour market then the EUR USD exchange rate may struggle to hold onto all of its latest gains for long.
Current EUR USD Interbank Exchange Rates
At the time of writing, the Euro US Dollar exchange rate was making gains around 1.1066. Meanwhile, the US Dollar Euro exchange rate was slumped in the region of 0.9033.