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Increased German Business Confidence Leaves Euro US Dollar (EUR/USD) Exchange Rate Flat

Euro US Dollar (EUR/USD) Exchange Rate Muted as German Economy Flirts with Recession and Stagnation

The Euro US Dollar (EUR/USD) exchange rate remained muted on Wednesday, leaving the pairing trading at around $1.1132.

Data revealed that Germany’s business confidence rose in December as the country continues to avoid a recession.

Over the course of the year, the German economy has been flirting with recession and stagnation.

According to Ifo, the bloc’s largest economy is ending the year on a positive note as business confidence increased for the fourth month in a row.

The business climate index rose to 96.5 from 95.1 while business expectations increased from 92.3 to 93.8.

Business confidence data suggests that the worst for the economy should be over, although what is to come next is unclear.

Commenting on this morning’s data, ING’s Carsten Brzeski noted:

‘Looking ahead, the widening gap between a weak manufacturing sector and solid consumption as well as a strong labour market looks hard to sustain. Something has to give.

Either the domestic protection against trade conflicts and global manufacturing weakness crumbles further or a bottoming out, followed by a meagre rebound, in the manufacturing sector will come just in time to push the economy to somewhat higher growth rates.’

US Dollar (USD) Flat Ahead of Impeachment Vote

On Wednesday, the US Dollar strengthened against a handful of currencies as solid data suggested the US Federal Reserve will need to be strongly persuaded to cut interest rates during the next meeting.

After a rebound in US industrial production, markets are not pricing in a Federal Reserve rate cut any time soon.

However, the ‘Greenback’ remained under pressure as the US House of Representatives are due to vote on whether to impeach US President Donald Trump later.

The Senate will vote in January, although analysts have said support for the impeachment decreased.

US-China ‘Phase One’ Trade Deal ‘Absolutely Completed’

The Dollar remained flat against the Euro despite the news a preliminary US-China trade deal boosting economic growth prospects for 2020.

Monday a top White House adviser said a ‘phase one’ trade deal had been ‘absolutely completed’.

The pairing was left flat as while a deal would benefit the Dollar, a trade deal would also provide the struggling German economy with an upswing of support.

US exports to China are expected to double under the deal, although Chinese officials have remained cautious as some believe trade tensions are not completely settled.

Added to this, chief economic adviser at Allianz, Mohamed A. El-Erian said:

‘The deal is too narrow to reverse deep and growing bipartisan support in the US for a tough stance against China, not just for economic purposes but also on grounds of national security and human rights.

‘[…] neither President Donald Trump nor President Xi Jinping seem keen to explicitly put their signatures to the agreement, leaving trade officials to sign.’

Meanwhile, the pairing remained flat as Tuesday say the US Trade Representative Robert Lighthizer say the country may increase tariffs on European goods.

As the United States tries to slash its trade deficit with the continent, fears increased for the export-reliant Euro.

Euro US Dollar Outlook: Will a Dovish Fed Weigh on USD?

Looking ahead, the US Dollar (USD) could slide against the Euro (EUR) following a speech from the Federal Reserve’s Charles Evans.

If the head of the Chicago Fed is overly dovish despite the upbeat US data, the Euro US Dollar (EUR/USD) exchange rate will edge higher.