The Euro to US Dollar (EUR/USD) exchange rate tumbled on weak Eurozone data as Markit’s final Purchasing Managers Indexes (PMI) came in lower than previously forecast. The Single Currency has been facing major headwinds of late as Eurozone ecostats continually fail to impress, placing more pressure on the European Central Bank (ECB) to take aggressive action.
Eurozone Deflation Risks Weigh on Euro to US Dollar (EUR/USD) Exchange Rate
For some time as economists have been speculating on the need for quantitative easing (QE) stimulus measures in the Eurozone to kick-start the recovery. Furthermore, the threat of deflation is a very real fear within the currency bloc. Companies have been forced to slash consumer prices in the most dramatic series of price cuts since 2010, in an attempt to boost sales in their flagging economies.
Thursday will see the result of the latest European Central Bank (ECB) rate decision and a press conference from central bank President Mario Draghi. Draghi is likely to be under heavy fire at the conference as investors and economists alike look for direction in the bank’s monetary policy and stimulus measures.
In this morning’s revised PMI report Markit Chief Economists Chris Williamson stated: ‘This month’s data make for grim reading, painting a picture of an economy that is limping along and more likely to take a turn for the worse than spring back into life. The combined threat of economic stagnation and growing deflationary risks will add to pressure on the ECB to do more to stimulate demand in the Euro area, strengthening calls for full-scale quantitative easing.’
Eurozone PMI Drags Euro Currency Lower
Whilst both France and Italy had upwardly revised Markit Services and Composite PMI’s, German and Eurozone figures fell from their initial forecasts. Germany’s Composite PMI softened to 53.9 in October from the previously predicted 54.8. Meanwhile, the Eurozone Composite report came in a shade below the formerly recorded 52.2 at 52.1.
However, it wasn’t just the Eurozone that received weak Markit data on Wednesday—the UK saw its Services measure drop in October to 56.2 from 58.7 while the Composite index also sank from 57.4 to 55.8. The weakness in the British economic recovery caused the Pound to Euro (GBP/EUR) exchange rate to soften.
Conversely, the US Dollar has gone from strength to strength in recent months as investors feel confident that the US economic recovery has progressed to a point where interest rate hikes will soon occur.
The most influential events for the ‘Buck’ today will be US Mortgage Applications, Employment change, and ISM Non-Manufacturing Composite figures. Movement in the EUR/USD exchange rate likely to occur this afternoon as US figures are released and a host of Federal Reserve officials make statements.
Eurozone Retail Sales Pull Euro Exchange Rate Lower
Wednesday has seen further disappointment for the Euro by way of Eurozone Retail Sales. The annual figure fell in September to 0.6% from 1.9% – the most extensive drop since April 2012.
Such a drastic decline will place further pressure on the ECB to invoke the use of QE. Economist Howard Archer stated: ‘The Eurozone still faces worryingly significant deflation risks and is struggling markedly for growth. Unless there is a sustained, clear change in the Eurozone’s fortunes, the ECB could yet ultimately have to go down the QE road.’
US Employment Change Enhances US Dollar Exchange Rate
The US Dollar enjoyed support from the release of October’s Employment Change figures which showed a jump above the initial forecast of 220K, to 230K. The October figure betters September’s 213K.
Wednesday’s figure offers an indication as to how the highly influential US Non-Farm Payrolls may pan out on Friday. Current predictions expect to see the figure reach 220K from the former 236K.
US Dollar Rallies to Seven Year High as Republicans Control Senate amid Strong Domestic Data
The US Dollar has risen to a seven-year high against safe-haven asset the Japanese Yen (USD/JPY) on Wednesday after data impressed investors.
Wednesday’s election announcements also encouraged US Dollar strength as the Republicans took control of the senate. A strong US economic outlook has led to investors pricing in interest rate hikes by the Federal Reserve in the near future.
Economic expert Bred Bechtel commented: ‘The Fed is keen to normalize next year and, if data continues to come in strong and good, they’ll have scope to do that. It’s always been a risk-positive kind of thing whenever Republicans re-gain control of the government because they have more market-friendly policies.’
Euro Firms against US Dollar (EUR/USD) as German Construction Expands
The US Dollar has taken a pause in its rally, allowing other currency majors to consolidate some of their losses. Thursday will see the release of US Continuing Claims and Initial Jobless Claims which may offer the ‘Buck’ some additional support.
The Euro has made a 0.25% advance against the US Dollar early in the European session which could be further enhanced by favourable German Construction PMI. The Markit report showed the index grew to 51.5 in October from 50. Markit’s German and Eurozone Retail Sales figures are scheduled for release on Thursday along with the ECB rate decision, which is expected to send ripples through the market.
Euro Exchange Rate Advances ahead of Mario Draghi Press Conference
The Euro has remained buyoant following the ECB’s latest interest rate decision which saw the current 0.05% remain in place. However, ECB president Draghi will be holding a press conference shortly which could allow further Euro movement.
The Bank of England also maintained their interest rate benchmark of 0.50% which caused heavy Sterling losses.
Euro Exchange Rate Drops on Draghi Comments
President Draghi gave a press conference this afternoon following the latest ECB interest rate decision which saw the Single Currency flop. Draghi suggested that the central bank was preparing to introduce other stimulus measures ‘if needed’ for the flailing Eurozone.
One analyst suggested: ‘Draghi has a tendency to cause hysteria in the markets even when he potentially doesn’t mean to. It only takes the slightest suggestion that further easing is likely, or that QE is a possibility, and the markets go wild.’
Euro Exchange Rate Advances on German Trade Surplus
The Euro gained on favourable German data on Friday which saw the trade balance extend its surplus. The balance rose from 14.0B in August to 21.9B in September–higher than economists’ 19.0B forecasts.
US Dollar Exchange Rate Could Rally on Employment Figures
The Euro has retained gains made against the Pound and US Dollar on Friday from increased investor sentiment in the Single Currency. However, advances against the ‘Greenback’ may be short lived as the US Unemployment Rate shrank surprisingly in October. Economists’ had expected joblessness to remain at 5.9% but the actual figure showed a fall to 5.8%.
In addition, US Change in Non-Farm Payrolls saw September’s figure positively revised to 257K. However, October’s ecostat failed to reach predictions of 235K, instead residing a shade lower at 214K.
With such a favourable outcome for the labour sector, the US Dollar could rally against other majors.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,Euro , 1.2807,
US Dollar,,Euro , 0.8049,
Canadian Dollar,,Euro , 0.7055,
Australian Dollar,,Euro , 0.6923,
New Zealand Dollar,,Euro , 0.6220,
[/table]
