The Euro continued to slip against the US Dollar on Monday afternoon, as investors reacted to the day’s mixed US data.
While US existing home sales from June disappointed, Markit’s preliminary US PMIs beat expectations in every print.
Manufacturing improved from 52 to 53.2, beating 52.1 forecasts. Services remained at 54.2 rather than dropping to the projected 54.1.
The overall composite PMI looks to improve from 53.9 to 54.2.
[Published 11:50 BST 24/07/2017]
Last week saw the Euro US Dollar exchange rate surge as investors reacted to the latest European Central Bank (ECB) news. The pair advanced from 1.1466 and ended the week near a two-year-high of 1.1681. However, if the Federal Reserve impresses this week, EUR USD could be sold off from its recent highs.
Euro (EUR) Strength Limited by Underwhelming Eurozone PMIs
The Euro soared against many majors last week including the US Dollar.
Investors found the Euro more appealing after European Central Bank (ECB) President Mario Draghi indicated that bank officials were likely to discuss its quantitative easing (QE) program sometime before the end of the year.
However, this week the Euro outlook has been dampened just slightly as Markit’s Eurozone PMI projections from July mostly fell short of expectations.
While France’s manufacturing PMI was better-than-expected, rising from 54.8 to 55.4, all of Germany’s and the overall Eurozone’s PMI prints came in lower than expectations.
German manufacturing dropped from 59.6 to 58.3, missing the forecast 59.2. Eurozone manufacturing came in at 56.8 and services remained at 55.4.
The overall Eurozone composite print was forecast to slip slightly from 56.3 to 56.2, but instead dropped to 55.8.
Still, analysts weren’t too disappointed by the report. They were unsurprised that Eurozone private activity had slowed after one of its best quarters in years and predict that these results indicate another solid quarter is ahead.
As a result, the Euro’s movement may be limited this week unless other key Eurozone prints disappoint.
The data with the biggest potential to affect the long-term Euro outlook will be Germany’s July Consumer Price Index (CPI) projections, due on Friday.
If German inflation comes in well below expectations, investors could become concerned that the ECB could be more likely to extend its QE program than to withdraw it. This would lead to a Euro selloff.
US Dollar (USD) Held Back by Low Fed Rate Hike Bets
The US Dollar was unable to capitalise on the Euro’s limited Monday weakness, as it has been lacking in market demand in recent weeks.
Poor US inflation data and concerns about roadblocks facing US President Donald Trump’s economic agenda are weighing heavily on Fed rate hike bets and USD demand.
As US inflation printed lower than expected last week, investors wound back bets of a third 2017 interest rate hike from the Federal Reserve. Fed officials had recently indicated they would be carefully monitoring US inflation.
Bets that the Fed won’t hike US interest rates again before 2018 are currently above 50%, leaving the US Dollar outlook full of uncertainties.
The last week has also seen the US Republican Party’s attempts to push through a new healthcare bill hit numerous obstacles, with many analysts believing the bill could be dead.
This has worsened market concerns that US President Trump will struggle to push through his economic plans for tax reform and infrastructure.
The US Dollar outlook could still improve in the coming week however. Most notably, the Federal Reserve will hold its July policy decision on Wednesday.
If the Fed takes a hawkish stance in its policy statement despite last week’s inflation data, the US Dollar could see a big recovery against the Euro.
However, if the Fed indicates that the chances of another 2017 rate hike have faded the Euro US Dollar exchange rate could extend its 2017 highs and the US Dollar outlook would worsen.
Any developments with the Republican healthcare bill could also influence the US Dollar outlook.
EUR USD Interbank Rate
At the time of writing this article, the Euro US Dollar exchange rate trended in the region of 1.1654. The US Dollar to Euro exchange rate traded at around 0.8580.
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