Euro sinks after US data

Published on 31.05.2023 16:28

The Euro has continued to come under pressure against the US dollar and in today’s trading session has extended its fall toward the 1.0660s area after upbeat economic data from the United States boosted the greenback. Earlier, Eurozone data showed that inflation is easing which also added to the Euro’s woes and at the time of writing, the EUR/USD is trading at 1.0663m, down by more than 0.60%.

Risk aversion has been the main driver since the beginning of the trading day. Further exacerbated by weak manufacturing activity in China and US debt-ceiling jitters, it triggered a flight to safety, namely the US Dollar. From the economic news side, the US economic agenda featured a surprising JOLTs report for April, with vacancies climbing the most in three months, hitting the market at 10.1M, exceeding estimates of 9.375M, 300K more than March.

That triggered a re-pricing towards a more hawkish Federal Reserve (Fed), with odds at 69.8%, for a 25 bps rate hike. Therefore, the EUR/USD tumbled 30 pips, from around 1.0690, toward the 1.0660 area, Following the data release. As of writing, the EUR/USD continued to fall as the day advanced.

Across the pond, inflation in Germany came below estimates in May, easing off pressure on the ECB to continue its aggression cycle. German inflation rose by 6.1%, beneath forecasts of 6.5%, lower than April’s 7.2%. Earlier France revealed that prices slowed to 5.1%, from the 5.5% foresaw by analysts.

According to analysts at Rabobank the Euro’s issues are far from over and market participants can expect more weakness over the coming months as stagflation fears hit the European continent.

“The market is already comfortably priced for further rate hikes and moderating price data and the threat that the Eurozone is facing stagnation in H2 suggest that the EUR can sink further vs. the USD in the coming weeks.” they said.

“The risk that the US may fall in recession this year, combined with a disappointing recovery in China and stagnation risks in the Eurozone do not bode well for risk appetite. In this environment the USD is likely to find support.” they added.