A sharp drop in confidence in Germany and the wider Eurozone saw the US Dollar make further gains against the Euro on Tuesday, concerns over an escalation in the Iraq conflict meanwhile created demand for the safe haven ‘Greenback’.
Earlier in the session, the single currency weakened sharply against the US Dollar after data released by the ZEW Centre showed that investor confidence in Germany, (the Eurozone’s largest economy) declined for an eight consecutive month to its lowest reading in 20-months.
The ZEW Index for Germany fell from the 27.1 figure recorded in July to 8.6 in August.
The ZEW sentiment index for the wider Eurozone also fell sharply, raising fears that the European Central Bank (ECB) will have to introduce new monetary easing measures in order to assist the regions faltering economic recovery.
The prospect for improving data in the Eurozone also seems unlikely for the near future as the Ukraine crisis has a negative impact.
‘The poor ZEW data is bad news for the Euro. We know about the economic weakness in peripheral countries like Italy, but there is always hope that Germany will be a growth engine that supports the region. Now the growth engine itself seems to be sputtering,’
The US Dollar was also supported by renewed demand for safer assets as the Ukrainian government warned that it could prevent a Russian convoy supposedly carrying medical supplies from crossing the border.
Ukrainian Security Council spokesperson Andriy Lysenko said that aid would only be allowed through if it were accompanied by Red Cross Officials.
With 45,000 Russian troops positioned along the border Ukraine and the West are nervous that Moscow could use the guise of a humanitarian mission as an excuse to invade.
The situation in Iraq meanwhile escalated further on Tuesday after the UK announced that a number of Tornado jets had been sent to Cyprus before launching surveillance missions.
A number of helicopters are also likely to be sent to Iraq to aid in delivering much needed to supplies to trapped refugees. Calls for more military action by the UK have also heightened.
US Dollar to Euro (USD/EUR) Exchange Rate Forecast
Investors will now be looking ahead to Thursday’s Eurozone data for further guidance for the currency pair.
The GDP data for the Eurozone and member nations will show just how much of an impact the Ukraine and weakening regional economy is having.
The latest inflation data is also due to be published. Economists are forecasting that the annual rate of inflation will remain at 0.4%, well below the ECB’s target of 2%.
The US Dollar meanwhile is likely to make further gains on Wednesday if retail sales data comes in positively. Economists are forecasting that month on month sales increased by 0.3% in July. Sales excluding car sales are expected to remain unchanged at 0.4%.
US Dollar (USD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
US Dollar,,Pound Sterling,0.5956 ,
US Dollar,,Euro,0.7491 ,
US Dollar,,Canadian Dollar,1.0935 ,
US Dollar,,Australian Dollar,1.0790 ,
Pound Sterling,,US Dollar,1.6791 ,
Euro,,US Dollar,1.3349 ,