Although the German construction PMI strengthened from 54.6 to 55.3 in May this was not enough to boost the appeal of the Euro.
Confidence in the health of the wider Eurozone economy remains limited thanks to ongoing worries over Greece, as the issue of debt relief looks set to rumble on for some time to come yet.
Jitters are likely to persist ahead of the Eurogroup’s June meeting, which is the last chance for officials to approve the disbursement of the next tranche of bailout funds before July’s looming repayment deadline.
Any signs that Greece could be facing a default in July could weigh heavily on the appeal of the single currency, dragging EUR exchange rates lower across the board.
Pressure could also mount on the Euro if April’s retail sales figures prove disappointing, with forecasts pointing towards sales growth of just 0.1% on the month.
If the Eurozone economy shows signs of being in a less robust state of health this would reduce the pressure on the European Central Bank (ECB), limiting the chances of a return to a policy tightening bias.
However, ECB President Mario Draghi could prompt a rally for the Euro US Dollar exchange rate on Thursday if he takes a more optimistic view on monetary policy.
While tapering of the quantitative easing program is likely to remain off the table for the foreseeable future any indication that policymakers are shifting towards a more hawkish outlook should encourage investors.
Soft US Data Weighs on US Dollar Demand
Demand for the US Dollar, meanwhile, has weakened in response to the disappointing nature of recent US data.
As both the ISM non-manufacturing composite and durable goods orders figures surprised to the downside the strength of the world’s largest economy seemed in doubt.
Although this is not likely to deter the Federal Reserve from raising interest rates at next week’s policy meeting markets are increasingly doubtful that policymakers will pursue an aggressive pace of tightening.
Political risk also continues to limit the appeal of the ‘Greenback’, as analysts at ANZ noted:
‘We still see US yields higher by year end (and believe the market is under-pricing the Fed), but with Comey testimony, the UK election and the ECB meeting all this week, we doubt the market will want to run with that.’
Even so, if the latest jobless claims data paints a picture of a more resilient US labour market the US Dollar could find some measure of support ahead of the weekend.
Current EUR USD Interbank Exchange Rates
At the time of writing, the Euro US Dollar exchange rate was on a downtrend around 1.1248. Meanwhile, the US Dollar Euro exchange rate was making modest gains in the region of 0.8888.