**EUR/USD Closes the Week Nearly 1% Higher as Trade Optimism Counters Weak US Economic Data**
*Original source: FXStreet, authored by Ross J. Burland*
The euro posted its strongest weekly performance in months against the US dollar, with the EUR/USD currency pair gaining close to 1% over the last five trading days. A convergence of factors contributed to this rise, as improving market sentiment driven by global trade optimism offset disappointing economic data from the United States. This week’s moves reflect a shift in investor confidence, with capital flowing away from the US dollar and toward risk-sensitive assets, including the euro.
The broader market narrative surrounding the euro’s gains is anchored in developments in global trade relations, expectations surrounding central bank policy moves, and recent economic data. Below, we take a closer look at all of the dynamics that influenced this week’s currency pair movement.
## Overview of EUR/USD Performance
– EUR/USD closed the week nearly 1% higher.
– Price action broke through key resistance levels, reflecting stronger buying pressure.
– Week’s high reached 1.1130, a level not seen since earlier in the quarter.
– A generally weaker US dollar, amidst lower US Treasury yields and soft economic data, helped propel the euro.
## Key Drivers Influencing EUR/USD
Multiple macroeconomic and geopolitical factors contributed to the euro’s appreciation this week. Below is a deeper look into each of the primary drivers:
### 1. Weaker US Economic Indicators
The US dollar struggled during the week as recent economic data releases fell short of analysts’ expectations, signaling a potential slowdown in momentum within the US economy.
#### Main Disappointments from US Economic Data:
– **Durable Goods Orders**: Unexpectedly contracted, raising concerns about business investment activity in the US. Durable Goods Orders, excluding transportation, showed a modest gain, but headline data failed to impress markets.
– **Initial Jobless Claims**: Although not extraordinarily high, new jobless claims rose slightly from the previous week — suggesting some softness in the labor market.
– **US GDP Forecast Downgrades**: Economists and institutions like the Atlanta Fed revised their Q3 growth forecasts downward.
– **PMI Figures**: The S&P Global US Manufacturing and Services PMIs both underperformed expectations, signaling a slowdown in private sector activity and reduced business optimism.
Overall, the data suggested that the US economy might be losing its footing, prompting investors to reassess interest rate expectations related to the Federal Reserve.
### 2. Federal Reserve Outlook and Policy Positioning
The US Federal Reserve remains at the forefront of investor focus, particularly with regard to future liquidity in global markets.
#### Factors Affecting Fed Expectations:
– **Market Pricing**: Futures markets (CME FedWatch Tool) began reflecting increased probability for a rate cut in Q1 or Q2 of next year.
– **Fed Communication**: Recent Fed speeches hinted at increasing caution among policymakers. While inflation numbers have remained sticky, Fed officials are also becoming more data-dependent. That shift is making investors question just how hawkish the Fed can remain.
A dovish tilt going forward would typically weaken the dollar, especially if the European Central Bank (ECB) holds its current stance or appears more hawkish.
### 3. Eurozone Continuing Stabilization
While the eurozone has faced its own share of economic challenges this year, recent data has not been as worse as expected. In some cases, conditions are showing mild improvement, lending strength to the shared currency.
#### European Economic Developments:
– **Euro Area PMI Data**: Though still below the 50-contraction line, recent PMI readings have shown signs of bottoming out, especially in services.
– **German Ifo Business Climate Index**: Showed a slight uptick, reflecting improved sentiment in the largest economy of the euro area.
– **ECB Signals**: European Central Bank President Christine Lagarde emphasized the need for data-driven decisions, signaling no immediate rush to cut rates
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