The Euro has advanced against the US Dollar on Tuesday afternoon, following the news that Eurozone consumer confidence has risen by more than expected.
The flash reading for January showed an index increase from 0.5 points to 1.3, greatly exceeding the expected 0.6 point result.
Offering an optimistic forecast based on the stats, ING economist Bert Coljin said;
‘With such a favourable outlook, it could well be that the record for [Eurozone] consumer confidence could be breached a few more times in 2018’.
(First published 23rd January, 2018)
Concerns about Future German Government Leave EUR/USD Exchange Rate Tight
The Euro has traded in a narrow range against the US Dollar today, despite recent Eurozone data being strongly supportive of the EUR/USD exchange rate.
ZEW economic sentiment surveys for January have shown growing optimism across Germany and the Eurozone, with recent scores beating forecasts in all cases.
Problematically, on the other side of this rising economic confidence there are still high levels of political uncertainty among Euro traders.
German coalition talks remain a key factor in this, even though they recently saw a crisis averted when the SPD Party held a vote over the weekend.
The party voted to continue coalition discussions, although the SPD and CDU/CSU union still have yet to reach an overall agreement for a grand coalition.
CDU official Volker Kauder has put a tight deadline on concluding coalition discussions, saying;
‘We should finish the coalition negotiations in two to three weeks.
The citizens are tired of waiting. Every day that passes without a new government does not exactly increase trust in the parties and democracy’.
US Dollar to Euro Rate (USD/EUR) Stable after Government Shutdown Lifted
Over in the US, USD traders have been breathing a sigh of relief after the lifting of the recent government shutdown; this lasted for three days in total.
The US Dollar has made a marginal advance against the Euro, but has traded in a narrow range elsewhere.
A compromise between the Democrat and Republican parties led to this agreement, although the two sides remain bitterly divided on a number of key issues.
Euro to US Dollar Exchange Rate Forecast: EUR/USD Drop Possible on PMI Stats
The Euro may be in danger of dropping against the US Dollar on 24th January, when high-impact PMI activity readings come out during the morning.
Current estimates are for slowing economic activity in Germany and the overall Eurozone, which could mean that the Euro declines in value.
Lower PMI readings mean that Eurozone inflation and GDP could also drop, potentially leading to lower odds of interest rate hikes in the future.
The silver lining to these pessimistic PMI forecasts is that the Eurozone is not expected to see contracting activity, although slowdowns could still concern traders.
The next significant US news will be out on 26th January, when a refined US GDP reading comes out.
The Q4 advanced reading is predicted to show a slight reduction in annual GDP growth, from 3.2% to 3%.
Such a result may devalue the US Dollar, as hopes have been for a tax cut-inspired economic surge this year.
The US Dollar to Euro exchange rate could also decline on Friday when durable goods orders stats come out; these are tipped to show a reduction on the month in December.
Fewer orders and slowing GDP growth could combine in a perfect storm for USD traders, greatly lowering confidence and triggering a USD/EUR rate drop.