As the odds of further monetary easing from the European Central Bank (ECB) are expected to increase the Euro to US Dollar (EUR/USD) exchange rate is predicted to remain on a downtrend.
Greek Inflation Rate Drops Further into Negative Territory & Weighs on Euro (EUR)
Ahead of the weekend the Euro to US Dollar (EUR/USD) exchange rate experienced turbulent movement as investors lacked any particular confidence in either currency. Initially the single currency (EUR) was shored up as the latest German trade data strongly bettered expectations, with the country’s trade surplus rising from 13.4 billion to 20.3 billion Euros in February. While this would suggest that the Eurozone’s powerhouse economy is showing renewed signs of strength markets were not inclined to react with particular optimism, however, as dovishness persisted.
Fed Chair Janet Yellen had emphasised the more positive outlook of the US economy in comments on Thursday evening, in contrast to the dovish tone of the recent Federal Open Market Committee (FOMC) meeting minutes. Nevertheless, despite this somewhat hawkish commentary the US Dollar (USD) remained on a downtrend, as the odds of an imminent interest rate hike were seen to remain slim.
Weaker Eurozone Inflation Outlook Predicted to Dent EUR/USD Exchange Rate
The inflationary outlook of the Eurozone is looking somewhat bleaker following Friday’s Greek inflation rate data. Markets were severely disappointed to find that inflation within the Hellenic nation had plunged from -0.5% to -1.5% on the year in March. This sharp slump does not bode well for the overall Eurozone Consumer Price Index, due for release on Thursday, and consequently for the European Central Bank’s (ECB) future monetary policy.
As ECB President Mario Draghi recently reaffirmed his commitment to do ‘whatever it takes’ to boost inflationary pressure within the currency union it would seem that the central bank may need to consider deploying further easing measures in the near future. Unless Tuesday’s finalised German Consumer Price Index offers cause for confidence, counteracting this weaker Greek figure, the Euro is expected to remain on a softer footing against rivals in the coming week.
US Dollar (USD) Exchange Rate Forecast to Strengthen on Higher Retail Sales
On Wednesday US Advance Retail Sales are expected to show a modest recovery to climb from -0.1% to 0.1% in March. While this would suggest that consumer demand and confidence had improved on the month, offering another indication that the world’s largest economy is strengthening, the impact of this result may prove limited. As markets increasingly doubt the likelihood of an imminent interest rate hike from the Fed bullish data may struggle to offer any particularly strong level of support to the US Dollar.
Even so, with the chances of increasing divergence between the ECB and the Fed in the coming months the EUR/USD exchange rate is likely to maintain a dovish bias, particularly as safe-haven demand tends to favour the ‘Greenback’.