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Euro to US Dollar Exchange Rate Tumbles on German Recession Fears and Safe Haven Demand

Euro to US Dollar Exchange Rate Suffers from Euro Weakness while US Dollar Firms

Last week’s Euro to US Dollar (EUR/USD) exchange rate gains have been largely erased already, as fresh concerns about Germany’s slowing economy combined with market aversion for risk-taking left the Euro (EUR) much weaker while the US Dollar (USD) firmed.

Despite climbing from 1.1405 to 1.1455 last week on US Dollar weakness, EUR/USD has already shed those gains since markets opened on Monday this week. At the time of writing today, EUR/USD trended near a weekly low of 1.1383.

The primary cause of Euro weakness so far this week has been continued signs that the Eurozone economy is slowing, with particular focus and concern on Germany.

Germany is the Eurozone’s biggest economy, so fears of recession in the nation have made the Euro highly unappealing.

The US Dollar has been able to benefit from Euro weakness despite a lack of fresh US Dollar support, due to market aversion to riskier currencies.

Euro (EUR) Exchange Rates Slump as German Factory Orders Contract

Recent German data has repeatedly fallen short of market expectations. Not only has this made analysts expect that Germany’s economic slowdown will last longer than previously feared, but concerns are now rising that the nation is headed for a recession.

These concerns worsened further today, as Germany’s December manufacturing orders report surprised investors with a contraction of -1.6%, as opposed to the expected growth of 0.3%.

The previous figure was revised higher from -1.0% to -0.2%, but the new figure being an even deeper contraction offset any optimism.

Germany’s latest construction PMI, for January, also disappointed by falling to a low 50.7.

According to Claus Vistesen, Chief Eurozone Economist at Pantheon Macroeconomics:

‘The year-over-year rate was depressed by base effects from a very strong finish to the year in 2017, but the message remains clear: German manufacturing is suffering.’

Amid concerns that the Eurozone’s biggest economy could see a recession, the Euro tumbled today.

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Expectations for a strong US economy despite slowing global growth, as well as global market aversion to risks, kept the US Dollar buoyed today.

Various factors weighed on market risk sentiment, making investors more eager to buy reliable safe haven currencies like the US Dollar.

Reserve Bank of Australia (RBA) Governor Philip Lowe indicated in a Wednesday morning speech that the chances of an interest rate cut are currently about as high as the chances of a hike.

This marked a dovish shift in tone for the bank, despite the bank’s cautiously neutral tone in its policy decision earlier in the week.

This news, as well as weaker prices in commodities like oil and concerns about US-China trade tensions, left the safe haven US Dollar sturdy.

Strength in recent US data has also helped the US Dollar remain supported, as it has bolstered Federal Reserve interest rate hike bets.

Euro to US Dollar (EUR/USD) Exchange Rate Outlook to be influenced by German Data

The primary cause of Euro to US Dollar exchange rate losses this week so far has been concerns about Germany’s slowing economy, so the focus will likely remain on German data in the coming sessions too.

Germany’s December industrial production results will be published tomorrow, with Germany’s December trade balance results due on Friday.

If these surprise investors and come in stronger than expected, the Euro could see a rebound in demand and recover some of this week’s losses versus the US Dollar.

Of course, continued weakness in German data would only exacerbate Euro weakness instead.

The Euro may also be influenced by France’s December industrial production stats, due for publication on Friday.

Meanwhile, the US Dollar is more likely to be driven by shifts in market risk-sentiment as most of this week’s most influential US data has been published already.

A speech from Federal Reserve President Jerome Powell tonight and US jobless claims due for publication tomorrow could also influence the Euro to US Dollar (EUR/USD) exchange rate.