The euro held firm above the $1.13 mark on Friday, maintaining its highest level since May 6 as investors digested a mixed wave of economic data and assessed the implications for the European Central Bank’s (ECB) monetary policy outlook.
Euro at over two-week high
Germany’s Q1 GDP growth was revised upward to 0.4%, marking the fastest pace of expansion since Q3 2022 and reflecting robust household consumption and increased fixed investments. This positive development provided a boost to the euro, highlighting pockets of resilience within the Eurozone’s largest economy.
In contrast, French consumer confidence unexpectedly declined in May, hitting a five-month low amid worries over inflation and economic uncertainty. This softer sentiment in France underscored the uneven recovery across the region, adding a layer of caution to the overall picture. These mixed signals followed the release of a stronger-than-expected German Ifo Business Climate Index on Thursday, which indicated improved business optimism, but were tempered by a disappointing Eurozone Purchasing Managers’ Index (PMI) survey that revealed an unexpected contraction in private sector activity, suggesting that economic headwinds remain.
Amid this backdrop, the ECB is widely anticipated to cut interest rates at its upcoming meeting on June 5, as it aims to support the region’s fragile recovery. Market participants are also pricing in the possibility of an additional rate reduction later this year, reflecting expectations of continued accommodative monetary policy in response to subdued growth and inflation concerns.
Concerns over mounting US debt burden
Meanwhile, across the Atlantic, concerns over the mounting US debt burden continued to weigh heavily on the dollar. Investor anxiety was exacerbated by the narrow passage of President Trump’s new tax bill in the House, which has raised fears of further fiscal deterioration and heightened uncertainty about the US economic outlook. This weakness in the dollar provided additional support for the euro, contributing to its sustained strength in foreign exchange markets.
Overall, the euro’s resilience amid mixed economic data and dovish ECB signals, combined with dollar weakness driven by US fiscal concerns, suggests a cautious but positive tone for the currency as markets navigate a complex global economic landscape. Investors will be closely watching upcoming economic releases and central bank communications for further direction.
