Key points:
- The EURUSD currency pair fell today as the dollar remained strong.
- Germany’s recession expectations also fueled the euro’s weakness.
- The euro’s performance will depend on tomorrow’s NFP data.
The EURUSD currency pair fell today as the US dollar remained stronger than most of its peers as tracked by the US Dollar Index, which was up 63.6 pips (0.57%) at writing. The dollar’s strength was mainly driven by investor expectations of positive non-farm payroll data scheduled for release tomorrow.
The euro’s weakness was attributed to news that the German government expects the country’s economy to contract by 0.4% in 2023. The news damaged the single currency since Germany is the eurozone’s largest economy. Moreover, a contraction in Germany’s economy is likely to spill over into other EU countries.
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The release of the European Central Bank’s monetary policy meeting minutes earlier today also drove the euro lower as the policymakers noted with concern that the euro’s depreciation against other leading currencies, chief among them being the US dollar, could escalate the inflationary pressures in the region.
A weak euro means that the cost of imports into the EU will rise; hence, consumer prices would soar as businesses would have to pay more for imports and will most likely pass on the costs to consumers in eurozone countries.
The EURUSD currency pair’s technical picture also does not look promising, given that the pair reversed course at the crucial 1.000 level as buyers could not push the euro above parity earlier this week.
The pair bounced against the level and failed to break above it, leading to a move lower. As a result, the EURUSD currency pair fell significantly yesterday and today and could accelerate its losses tomorrow if the non-farm payroll data is better than expected.
A solid non-farm payroll print would encourage the US Fed to continue on its current hawkish path by maintaining aggressive interest rate hikes for much longer. The effect of such an outcome could further weaken the euro.
However, the euro could get some relief if tomorrow’s NFP data misses expectations, which could boost the single currency as the dollar weakens.
*This is not investment advice.
The EURUSD price chart.
The EURUSD currency pair was trading down 39.8 pips (0.40%) at writing as the dollar remained stronger.
