Uncertainty ahead of a key week for Eurozone news and European politics weighed on the Euro to US Dollar (EUR/USD) exchange rate on Monday, preventing the pair from sustaining any gains. The US Dollar saw steady demand despite market anxiety ahead of a testimony from Fed Chair Powell on Wednesday.
Due to a stronger US Dollar, last week saw EUR/USD plunge from 1.2413 to 1.2293. The pair briefly touched on a low of 1.2261 on Thursday. On Monday EUR/USD briefly advanced, but its gains were limited and the pair was trending near the week’s opening levels in the afternoon.
Amid a lack of particularly impressive Eurozone ecostats, as well as uncertainty ahead of upcoming key news, demand for the Euro has been mixed and this has made it difficult for the currency to sustain gains.
Last Friday’s Eurozone Consumer Price Index (CPI) results from January had little impact on the Euro outlook, despite the monthly inflation rate contracting less than expected.
Overall, with yearly core inflation only just reaching 1.0%, the data indicated that the European Central Bank (ECB) still has plenty of reasons to take a cautious stance on monetary policy for a while.
On top of this, political uncertainties have hit headlines this week.
Italy is set to hold its 2018 general election on Sunday the 4th of March, and while Italy’s most popular parties have moved away from anti-EU rhetoric for now there is still the chance that the topic of Italy exiting the EU could be rekindled sometime in the future.
The 4th of March will also see the results of a poll from Germany’s SPD Party. The poll is expected to show whether the Party supports another ‘grand coalition’ between the SPD and German Chancellor Merkel’s CDU Party.
As this uncertainty limited market appetite for the Euro, EUR/USD trended closer to the week’s opening levels on Monday afternoon, despite some underwhelming US data.
Monday’s US data largely came in below expectations. Chicago’s January Fed national activity index came in at 0.12 rather than the expected 0.20, while new home sales contracted at -7.8% rather than improving to the forecast 3.8%.
St. Louis Fed President James Bullard took a relatively cautious stance in his Monday speech, arguing that if the Fed continues to hike rates in the short term, policy could end up too tight for the US economy.
Investors didn’t find the Euro much more appealing than the US Dollar regardless of Monday’s US news though and instead awaiting key upcoming data and news.
Tuesday will see the publication of a slew of notable Eurozone data, including the bloc’s February confidence survey results, as well as February inflation projections for Spain and Germany.
Wednesday will follow with key data such as German confidence and unemployment stats, as well as the highly influential Eurozone inflation projections for February.
Eurozone inflation in particular has the potential to influence European Central Bank (ECB) speculation if it surprises. Higher than expected inflation results could boost hopes that the ECB may be pressured into tightening Eurozone monetary policy sooner than expected.
Towards the end of the week, PMI data and unemployment stats for the Eurozone will be published too, but if Euro movement remains limited investors may be more likely to await next weekend’s political news.
US Dollar trade may be influenced by durable goods orders on Tuesday, but markets are highly anticipating Wednesday’s Gross Domestic Product (GDP) projections and the first Congressional Testimony of new Federal Reserve Chairman Jerome Powell.