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EUR/USD Hits 4-Month Low as Rate-Cut View Continues to Materialize

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EUR/USD Hits 4-Month Low as Rate-Cut View Continues to Materialize

The euro declined further against its US counterpart Friday, as investors found an excuse to bid up the greenback amid rebounding US home sales.

The EURUSD declined 0.18 percent to 1.3631, a four-month low. Friday marked the fourth consecutive decline for Europe’s common currency, which continues to be hampered by mixed data and rate cut speculation. The EURUSD pair is currently trading slightly above the initial support of 1.3628. On the upside, initial resistance is likely found at 1.3672.

In economic data, German gross domestic product accelerated faster than forecast in the first quarter, the Federal Statistics Office confirmed today. The German economy expanded 0.8 percent on the quarter and 2.3 percent on a calendar-adjusted basis, marking the fastest quarterly expansion in three years. Growth was spearheaded by domestic factors, such as stronger investment and higher consumer spending.

Domestic demand added 1.7 percentage points to first quarter GDP and private consumption added 0.4 percentage points. International trade subtracted 0.9 percentage points, official data showed.

However, a leading indicator of investor sentiment suggested that German expansion is expected to slow in the coming quarters.

The Ifo business climate index fell from 111.2 to 110.4 in May. The current assessment fell from 115.3 to 114.8, and the gauge of expectations dipped from 107.3 to 106.2.

GfK will report on German consumer confidence Monday.

Eurozone GDP expanded just 0.2 percent in the first quarter, the European Commission confirmed last week. That was half the rate economists had forecast. Year-on-year, GDP advanced 0.9 percent, also falling short of forecasts. Eurozone GDP was dragged down by disappointing readings from France and Italy, the currency region’s second and third largest economies, respectively. Italian GDP contracted slightly in the first quarter, while French growth was flat.

Economists polled by Reuters this week say the European Central Bank will cut the interest rate and introduce a negative deposit rate at the June policy meetings in an attempt to shore up inflation. Eurozone inflation has remained in what ECB President Mario Draghi described as the “danger zone” of below 1 percent for seven consecutive months. Draghi has gone on record to say the central bank could take action at the June meetings if inflation continued to weaken.

The ECB’s benchmark lending rate is currently at 0.25 percent, and deposit rates are at 0 percent. The central bank reduced the interest rate from 0.5 percent to 0.25 percent in November in response to declining inflation. The ECB’s next rate decision will be made June 5.

In US data, new home sales advanced 6.4 percent in April to a seasonally adjusted annual rate of 433,000, exceeding estimates, the Commerce Department reported today. An improving labour market and reduced affordability challenges played a role in the bigger than expected increase.

The US dollar index, a broad performance measure of the greenback, advanced 0.11 percent to 80.34.

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