The euro fell against the greenback yesterday following the release of robust US GDP data for the December 2023 quarter. The ECB’s decision to leave the interest rates unchanged further fueled the euro sell-off. Overall, the EUR/USD pair declined from a high of 1.0910 to a low of 1.0850 in the past 24 hours.
The German Ifo business climate index declined for a second successive month to 85.20 in January from 86.3 in December. Economists had anticipated an improvement in the German Ifo business climate index to 86.70. The reported reading reflects the weakest level since the conclusion of the Covid-19 outbreak in May 2020.
The expectations index inched down to 83.50 in January from 84.30 in December. Likewise, the gauge reflecting the current business situation fell to 87 from 88.50.
Later in the day, the Governing Council of the European Central Bank decided to leave the three principal ECB interest rates unchanged. Specifically, there will be no changes to the interest rate on the main refinancing operations, as well as the interest rates related to the marginal lending facility and the deposit facility, which will remain at 4.50%, 4.75%, and 4.00%, respectively. This decision was in line with economists’ estimates.
Moreover, the ECB Governing Council plans to fully reinvest the principal payments from maturing securities bought under the PEPP (pandemic emergency purchase program) throughout the first half of this year. Subsequently, during 2H24, it aims to systematically decrease the PEPP portfolio by an average of €7.5 billion per month. The Governing Council further aims to terminate reinvestments under the PEPP by the end of this year.
Additionally, the Governing Council conveyed its readiness to employ all tools within its mandate. This commitment is aimed at guaranteeing the return of inflation to its 2% target over the medium term and sustaining the seamless functioning of monetary policy transmission.
According to the data published by the US Bureau of Economic Analysis, the country’s economy expanded 3.30% q-o-q in the December 2023 quarter following a 4.90% rise in the September 2023 quarter and surpassed forecasts of 2% growth.
Current-dollar GDP rose by 4.80% (or $328.70 billion) in 4Q23 to $27.94 trillion. This compares with an 8.30% (or $547.10 billion) increase in 3Q23. Likewise, current-dollar personal income surged to $224.80 billion in 4Q23, compared with a rise of $196.20 billion in 3Q23. Personal savings stood at $818.90 billion in the December quarter, up from $851.20 billion in the previous quarter.
Overall, the US GDP surged 6.30% (or $1.61 trillion) in 2023 to $27.36 trillion, compared with a rise of 9.10% (or $2.15 trillion) in 2022.
According to the US Department of Labor, the country’s unemployment claims rose to 214,000 in the week ended January 20 from 189,000 (upwardly revised from 187,000) in the previous week. The reported figure was higher than forecasts of 199,000. The four-week moving average was 202,250, down from 203,750 (upwardly revised from 203,250) in the previous week.
The solid US GDP data and the ECB’s decision to maintain key interest rates are expected to keep the EUR/USD pair slightly bearish in the short term.
The historical price chart indicates that the EUR/USD pair is descending after failing to break the resistance at 1.0910. The next level of support is anticipated to be only near 1.0755. Additionally, the currency pair is trading below its 50-day moving average, while the stochastic indicator is descending towards the bearish zone. Therefore, we anticipate the EUR/USD pair to remain in a downtrend for the next few trading sessions.
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