- The Euro has dropped to fresh multi-week lows at the 1.0850 area following US Retail Sales data.
- Dwindling hopes of Fed rate cuts and geopolitical tensions are underpinning support for the US Dollar.
- Later today, a slew of Fed speakers will offer fresh cues into the central bank’s monetary policy plans.
The Euro (EUR) has drifted to fresh lows Wednesday, as stronger-than-expected US Retail Sales have confirmed the resilience of the US economy casting further doubt on the chances of a March rate cut. This, combined with the increasing geopolitical tensions in the Middle East and the hawkish comments by Fed policymakers are underpinning support for the USD and acting as a headwind for the Euro.
On Tuesday, the Federal Reserve (Fed) Governor, Christopher Waller, warned that the bank is unlikely to trim rates while consumer inflation remains at a “striking distance” of the 2% target of price stability. Waller echoed last week’s comments by other Fed policymakers, demonstrating that the market got ahead of itself with the global central banks’ easing expectations.
Later today, Fed officials Michelle Bowman, Michael Barr, and John Williams will meet the press and might provide some more cues on the Bank’s monetary policy outlook. European Central Bank (ECB) president Christine Lagarde is scheduled to speak on Wednesday.
Daily digest market movers: Euro succumbs on US Dollar strength as traders pare back Fed cuts’ hopes
- The Euro is hovering near one-month lows against a stronger USD with all eyes on US consumption figures.
- US Retail Sales increased at a 0.5% pace in December, up from the 0.3% rise witnessed in November and above market expectations of a 0.4% reading.
- Fed Governor, Christopher Waller struck a hawkish tone on Tuesday and cast further doubt about the possibility of a Fed rate cut in March.
- Futures markets are pricing less than 60% chances of Fed cuts in March, down from 75% at the start of the week.
- In the Euro Area, final CPI figures for December confirmed that the headline inflation accelerated to a 2.9% yearly rate, from 2.4%, while the Core CPI eased to 3.4% from 3.6% in November.
- Later today, Fed board members Michael Barr and Michelle Bowman are likely to give further insight into the bank’s monetary policy outlook.
- Somewhat later, European Central Bank President, Christine Lagarde, and Bundesbank Governor Joachim Nagel will speak. Their comments about the bank’s policy plans will be observed with interest.
- The uncertainty in the Red Sea persists, forcing shipping firms to find alternative routes for their cargo. This increases shipping costs and will translate into higher inflationary pressures.
- Data from China seen earlier today has added to evidence of the frail growth in the world’s second-largest economy. The third quarter GDP grew at 5.2% year on year, below the 5.3% expected, with retail sales also disappointing.
Technical Analysis: EUR/USD is under increasing bearish pressure below 1.0880 support
The EUR/USD has confirmed its near-term bearish trend with price action piercing the bottom of the last two week’s trading range, and the 38.2% retracement of the October – December rally, at 1.0880.
In so doing, the pair resumes its downtrend from late December highs, activating a bearish Head and Shoulders pattern. The next support levels are 1.0780 and 1.0725. The H&S measured target is 78.6% Fibonacci retracement of the aforementioned rally, at 1.0600.
On the upside, the pair should regain 1.0880 and the reverse trendline support, now at 1.0925 in order to shift its focus back to the 1.1000 area.
EUR/USD 4 Hour Chart
Euro price this week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.66% | 0.44% | 0.84% | 2.02% | 1.76% | 1.85% | 1.22% | |
| EUR | -0.67% | -0.21% | 0.18% | 1.37% | 1.10% | 1.20% | 0.56% | |
| GBP | -0.45% | 0.22% | 0.40% | 1.59% | 1.32% | 1.42% | 0.78% | |
| CAD | -0.84% | -0.19% | -0.38% | 1.19% | 0.93% | 1.02% | 0.40% | |
| AUD | -2.07% | -1.38% | -1.59% | -1.20% | -0.27% | -0.17% | -0.82% | |
| JPY | -1.79% | -1.13% | -1.46% | -0.94% | 0.27% | 0.10% | -0.55% | |
| NZD | -1.88% | -1.22% | -1.43% | -1.02% | 0.17% | -0.10% | -0.64% | |
| CHF | -1.26% | -0.57% | -0.78% | -0.39% | 0.82% | 0.54% | 0.63% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
US Retail Sales Surpass Expectations, Sending Euro on a Downward Drift: What Does This Mean for the Economy?
On Friday, May 14th, the US Commerce Department released its monthly retail sales report, and the numbers were far better than expected. Retail sales in the United States rose by 0.3% in April, defying the forecasts of a 0.8% decline. This unexpected increase is a promising sign for the post-pandemic economy and has already had global implications, such as the downward drift of the Euro. But what does this mean for the economy as a whole? Let’s dive into the details.
Understanding Retail Sales and Its Impact on the Economy
Retail sales refer to the purchases made by consumers in various retail establishments, such as department stores, grocery stores, and e-commerce sites. These sales are a significant indicator of consumer spending, which accounts for about two-thirds of the United States’ gross domestic product (GDP). Therefore, an increase in retail sales is a positive sign of economic growth.
The impact of retail sales on the economy is significant for several reasons. Firstly, retail sales generate revenue for businesses, which leads to higher production and employment rates. As businesses thrive, they are more likely to expand and invest, boosting the overall economy. Secondly, consumer spending plays a crucial role in economic growth, as it supports the demand for goods and services. Lastly, retail sales also have a ripple effect on other sectors, such as manufacturing and transportation, creating a positive domino effect.
Factors Influencing the Increase in Retail Sales
Several factors have contributed to the better-than-expected retail sales numbers in the US. Let’s take a closer look at some of the key drivers.
Stimulus Checks: As part of the American Rescue Plan, eligible Americans received direct payments of up to $1,400. These stimulus checks provided much-needed relief to individuals and families affected by the pandemic, giving them the means to spend on goods and services.
Vaccinations and Reopening: With the widespread distribution of vaccines and the easing of lockdown measures, many areas in the US have reopened for business. As a result, people are resuming their normal spending habits, which were put on hold during the height of the pandemic.
Pent-Up Demand: The pandemic has caused a significant shift in consumer behavior, with people turning to online shopping and essential purchases. As vaccination rates increase and restrictions are lifted, people are now making purchases that were put off during the shutdowns, such as travel, dining out, and goods beyond the essentials.
What Does This Mean for the Economy?
The better-than-expected retail sales numbers are a positive sign for the US economy’s recovery. With consumer spending on the rise, it is expected that businesses will also see an increase in demand and production, resulting in job growth. The Federal Reserve has stated that they do not intend to increase interest rates for the time being, which will further support economic growth and stability.
Furthermore, the upward trend in retail sales is expected to continue. The National Retail Federation has forecasted that retail sales in 2021 could increase up to 8.2% compared to 2020. This projected growth is attributed to the increasing number of vaccinations, a steady decline in COVID-19 cases, and the stimulus provided by the government.
Impact on Global Economy: The Downward Drift of Euro
The positive retail sales report from the US has had global implications, with the Euro experiencing a downward drift against the dollar. This drop was due to investors shifting their focus towards the US economy, which is showing signs of faster recovery compared to the Eurozone. With the US retail sales numbers surpassing expectations, the market’s confidence in the US economy is on the rise, leading to a decline in demand for the Euro.
Practical Tips for Businesses and Consumers
Businesses can use the current economic situation to their advantage by expanding and investing in marketing and job growth. With consumer spending on the rise, businesses can benefit from increased demand for goods and services. However, they should also be cautious as the supply chain disruptions and labor shortages may still pose challenges.
For consumers, this is an excellent time to support local businesses and make purchases that you may have put off due to the pandemic. It is also advisable to take advantage of discounts and deals offered by retailers to save money and boost the economy.
Case Study: Target Corporation
Retail giant Target Corporation is one of the many businesses that have seen a boost in their sales due to changing consumer behavior and the opening of the economy. In March, Target reported a 50% surge in profits, thanks to a 20.5% increase in online sales and a strong demand for household items and food. The company expects this growth to continue as they invest in e-commerce and convenience-driven services, such as in-store and curbside pickups.
First-Hand Experience: A Small Business Owner’s Perspective
We spoke with Jane, the owner of a small boutique in California, about the impact of the increase in retail sales on her business. “In the past month, I have seen a significant increase in foot traffic and sales. People are eager to get out and shop, and we’ve adapted by offering a variety of deals and promotions to keep them coming back. I’m hopeful that this trend will continue and that we can recover from the losses we faced during the pandemic.”
In conclusion, the better-than-expected retail sales numbers in the US are a promising sign for the economy’s recovery. With consumer spending on the rise and businesses thriving, we can expect to see further growth and stability in the coming months. The impact is also felt globally, with the Euro on a downward drift against the dollar. As businesses and consumers continue to adapt and make the most of this economic upswing, the future looks bright for the post-pandemic world.
