German GDP Hits, EUR/USD Continues Its Decline, Below 1.0820

In early European trading on Friday, EUR/USD continued its decline to around 1.0808. Supported by a stronger U.S. Purchasing Managers Index, the U.S. dollar rebounded across the board, suppressing the EUR/USD pair to fluctuate lower. Germany’s first-quarter gross domestic product (GDP) will be released on Friday. Germany’s gross domestic product (GDP) is expected to grow at a quarterly rate of 0.2% in the first quarter and contract at an annual rate of 0.2%.

The dollar rose on Thursday’s upbeat U.S. economic data. The U.S. S&P Global Composite Purchasing Managers Index (PMI) climbed to 54.4 in May from 51.3 in April, the highest level since April 2022. At the same time, the manufacturing purchasing managers’ index rose to 50.9 in May from 50.0 in April. The services purchasing managers’ index climbed to 54.8 in May from the previous value of 51.3. In addition, the number of people filing for unemployment benefits in the United States fell to 215,000 in the week ended May 18 from 223,000 last week, which was lower than the expected value of 220,000.

Atlanta Fed President Raphael Bostic said Thursday that the Fed may need to wait longer before cutting interest rates because he still sees upward pressure on inflation. Bostic’s hawkish comments boosted the U.S. dollar (USD) against the euro (EUR).

In the Eurozone, more and more investors are speculating that the European Central Bank (ECB) will start cutting interest rates before the Federal Reserve, which has put some selling pressure on the euro. European Central Bank President Christine Lagarde said she was “really confident that euro zone inflation is under control” and that a rate cut is possible next month. Financial markets are currently pricing in a 25 basis point rate cut by the European Central Bank in June, according to LSEG data.

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