The latest raft of Eurozone PMIs failed to impress the market, leaving the Euro on a weaker footing against many of the majors.
Even though growth across the currency union remained relatively strong there was still some disappointment that the PMIs generally fell short of forecast.
Confidence in the Euro remains relatively lacking in the wake of the European Central Bank’s (ECB) July policy meeting, with the chances of any tapering of the quantitative easing program looking distinctly limited at this juncture.
As analysts at Commerzbank noted:
‘The ECB has not even taken a small step towards a somewhat less expansionary monetary policy. It clearly wants to keep its flexibility for as long as possible despite the improved growth outlook. Even so, we still expect an announcement in September to reduce bond purchases from the beginning of 2018.’
Even so, EUR exchange rates could find some support if July’s IFO business sentiment survey points towards greater confidence within the German economy.
Signs of strength from the Eurozone’s powerhouse economy could encourage investors to buy back into the Euro, although the odds of greater ECB hawkishness are likely to remain muted regardless of any improvement in business sentiment.
A downside surprise, on the other hand, could set the Euro US Dollar exchange rate on a bearish trend.
US Dollar Strength to Remain Muted Ahead of Fed Policy Meeting
Political worries are still dragging on the US Dollar, meanwhile, as optimism in the abilities of the Trump administration continued to fade.
The ongoing investigation into the Trump election campaign’s links with Russia is limiting the appeal of the ‘Greenback’, particularly as the administration continues to spin its wheels over promised reforms.
As the International Monetary Fund (IMF) lowered its growth forecasts for the US the mood towards the US Dollar deteriorated, limiting its ability to capitalise on the softness of the Euro.
With the Federal Reserve looking set to pursue a less aggressive pace of monetary tightening than previously anticipated the upside potential of USD exchange rates remains somewhat limited.
A weaker showing from July’s consumer confidence index could offer the EUR USD exchange rate a rallying point, underlining investor worries over the health of the world’s largest economy.
However, the ‘Greenback’ is likely to remain under pressure in anticipation of Wednesday’s Federal Open Market Committee (FOMC) policy decision.
If policymakers take a more cautious view on monetary policy this could exacerbate recent USD weakness, adding to expectations that the Fed will leave interest rates unchanged for some months to come.
Any greater signs of hawkishness, though, may keep the EUR USD exchange rate on the back foot.
Current EUR USD Interbank Exchange Rates
At the time of writing, the Euro US Dollar exchange rate was trending lower at 1.1657. Meanwhile, the US Dollar Euro exchange rate was making modest gains in the region of 0.8576.