Over the last week, the Euro has been losing ground against the greenback. After strong gains at the start of the month, the EURUSD seems to have stalled and might be turning around. One of the key drivers of the currency pair has been the relative economic situation across the Atlantic. That is, on top of the tariff issue.
Tuesday sees the release of a couple of economic data points that could give some valuable insight into the EU and US economies. That would be helpful in trying to figure out where the EURUSD will be going in the coming days or weeks. Before the uptick in March, the pair was trending lower with many analysts saying it might reach parity. So, will it revert to that trend, or can it regain its upward momentum?
European Upward Momentum
First up is the release of the Ifo business climate survey for the Eurozone and Germany, and it’s the latter one that gets most of the market attention. Last time around, it saw a move higher as businesses in Germany started to feel a little more optimistic. But, the upward movement was almost entirely thanks to the expectations component, as German businesses felt that the current situation hadn’t improved.
Since then, Germany had a general election and was seen as very likely to reform the debt brake in such a way that it would increase spending to boost the economy. So, investors are expecting the expectations section of the survey to carry it higher. If businesses are finally seeing improved conditions, then the largest economy in Europe might be getting out of the doldrums that have been affecting it the last couple of years. In that case, A stronger Europe economy would mean the ECB would be under less pressure to ease and could firm up the Euro..
The American Exception
The dollar has been on the backfoot as investors have piled into the relative safety of Treasuries, pushing down yields. Worries of the economy slowing down has kept money out of the stock market. But the data has been mixed, with some pointing to improvement while others showing weakness. While the jobs market remains tight, consumer confidence has been shaken.
Consumers are the largest drivers of the US economy, so deteriorating consumer confidence could worry investors and weaken the dollar even more. In the Conference Board consumer confidence survey coming out on Tuesday, the key level is 80. If it falls below that number, it typically indicates an impending recession. But a miss of expectations could be enough to drag on the dollar if yields get renewed pressure.
What the Data Says
The consensus is for the German Ifo Business climate to expand to 89.1 from 85.2 prior, a strong improvement and continuing a trend from bottoming out in December. But here we have to be careful, because a too good result could have the opposite effect. Yields have been rising in Europe out of concern that the economy isn’t growing fast enough to cover the extra spending. So an outsized boost to the German economy can end up lower yields, and with them the Euro.
The US CB consumer confidence figure is expected to sink to 94.4 from 98.3 prior. This would be the fourth consecutive month of decline, after February’s figure hit the bottom of the range that has been prevalent since 2022. It’s expected to once again show that future prospects will drag down the reading, as American consumers seem worried about still high inflation and the effect of tariffs.
