The Euro (EUR) declined against the US Dollar (USD) for the second consecutive day on Friday, positioning itself to close the week lower for the second week in a row. This downward movement occurred despite the release of positive German macroeconomic data, as ongoing geopolitical uncertainty in the Middle East weighed on market sentiment and risk appetite [1].
Geopolitical tensions remained elevated as Tehran considered the latest peace proposal from the US, with skepticism prevailing among investors due to unresolved issues regarding Iran’s nuclear activities and control of the Strait of Hormuz. However, US Secretary of State Marco Rubio noted 'some progress' in talks with Tehran, which provided a glimmer of hope for a diplomatic breakthrough [1].
On the economic front, Germany’s final Q1 Gross Domestic Product (GDP) confirmed a growth rate of 0.3%, consistent with the previous quarter, while the annualized GDP was revised upward to 0.4% from the earlier estimate of 0.3% [1]. Additionally, the German IFO Business Climate Index for May improved to 84.9, surpassing both the consensus expectation of 84.2 and the previous reading of 84.4. The IFO Current Assessment also exceeded forecasts, rising to 86.1 compared to the consensus of 85.1 and the prior value of 85.4. These data points indicated improved sentiment about both current conditions and expectations for the next six months, alleviating some concerns about the impact of Middle East tensions on Germany’s economy [1].
In the US, attention was shifting to the upcoming Michigan Consumer Sentiment Index and the swearing-in of the new Federal Reserve Chair, Kevin Warsh. Earlier in the week, US data had been supportive of the US Dollar, further contributing to the Euro’s weakness [1].
CONCLUSION
Despite stronger-than-expected German economic data, the Euro continued to weaken against the US Dollar due to persistent geopolitical uncertainty and supportive US data. Market sentiment remains cautious, with investors closely monitoring developments in the Middle East and upcoming US economic indicators.