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Euro to US Dollar Exchange Rate Remains on Upside Trajectory as US Recession Speculation Returns

Euro to US Dollar Exchange Rate Climbing despite German Recession Fears

Relatively broad market predictions that Germany is either in recession or will just barely avoid it have not been enough to stop the Euro to US Dollar (EUR/USD) exchange rate from advancing gradually since early last week.

Since touching on a two-year-low of 1.0883 last Tuesday, EUR/USD has been making a relatively steady recovery.

EUR/USD closed last week higher, at the level of 1.0979, and though movement has been mixed so far this week it generally continues to trend with an upside bias.

At the time of writing on Tuesday, EUR/USD was trending near the level of 1.0986. Investors are hesitant to buy the pair too much ahead of the Federal Reserve’s latest meeting minutes tomorrow.

Euro (EUR) Exchange Rate Gains Limited as German Production Rebound May Not Last

Amid returning US recession fears, and speculation that Germany’s possible recession may not be as bad as expected, the Euro (EUR) was more appealing than the US Dollar (USD) today.

The latest boost of Euro support came from this morning’s German industrial production report from August, which beat forecasts of a -0.1% contraction to come in with modest growth of 0.3%.

What’s more, the previous month’s contraction was revised from -0.6% to a lighter -0.4%.

Still, while this news did cause fresh speculation that Germany’s embattled factory sector could finally be seeing some kind of recovery and bolstered hopes that Germany’s economy could narrowly avoid a Q3 recession, analysts expressed caution.

Thomas Gitzel from VP Bank predicted that Germany would still see a technical recession in Q3:

‘But unfortunately one must consider the industrial production data for August as a flash in the pan,

We expect production in September to be negative. This means that GDP will contract at least slightly in the third quarter.’

US Dollar (USD) Exchange Rates Pressured by Federal Reserve Speculation

Despite the Federal Reserve’s resiliently hawkish tone on US monetary policy lately, US data published over the past week has once again ignited speculation that the bank will soon be forced into taking a more dovish tone again.

Last week saw the publication of a slew of disappointing US ecostats, including surprise contractions in ISM’s key September PMIs, as well as signs that the strong US job market was slowing down.

While last Friday’s key US Non-Farm Payroll report showed that the US unemployment rate had unexpectedly improved to its lowest in 50 years, the news also showed that less new US jobs were created in September than expected.

These factors have caused fresh Federal Reserve interest rate cut bets, despite the Fed seeming so far hesitant to take a more dovish stance.

As a result, US Dollar investors are hesitant to sell the currency too much ahead of tomorrow’s anticipated Fed meeting minutes report.

Euro to US Dollar (EUR/USD) Exchange Rate Could Slump if Fed Minutes are Hawkish

With Wednesday’s session quiet in terms of German and Eurozone data, the US Dollar is likely to take focus for Euro to US Dollar (EUR/USD) exchange rate traders for now.

Federal Reserve easing speculation continues to be a big cause of EUR/USD resilience this week so far, and tomorrow’s Federal Reserve meeting minutes report is tomorrow’s most anticipated publication.

If Fed officials show a more dovish tone on the US economic outlook in the meeting minutes, despite the relative hawkishness of the bank’s policy tone, the US Dollar could be in for more solid losses as Fed interest rate cut bets would rise.

Other US news to look out for tomorrow includes JOLTs job openings and wholesale inventories stats from August.

The Euro is more likely to be driven by movement in its rival the US Dollar, at least until Thursday’s session.

German trade balance data is due to be published on Thursday, with German inflation stats likely to influence the Euro to US Dollar (EUR/USD0 exchange rate on Friday.