Brexit optimism and weak US data lifted the euro US dollar exchange rate to US$1.1139 on Thursday. This is the highest level that the pair has traded at in seven weeks. The euro is trading flat versus the dollar in early trade on Friday.
The euro advanced versus most of its peers in the previous session, following a Brexit deal agreement between UK Prime Minister Boris Johnson and EU Commission President Jean – Claude Juncker. The euro advanced in the wake of the agreement because a Brexit deal is also beneficial to the eurozone economy, in that it reduces uncertainty and risk.
Brexit induced volatility could continue as investors turn their attention to the next phase. Boris Johnson must get Parliament to agree to the Brexit deal. The Northern Irish DUP have said that they reject the deal as it stands. Meanwhile the leader of the opposition party Jeremy Corbyn has said that it is a worse deal than Theresa May’s, which was rejected by an overwhelming majority.
However, there is a difference this time. The EU have said that they will not extend the Brexit deadline. This essentially backs rebel Remainer MP’s into a corner. It means the choice is Boris Johnson’s deal or no deal. Faced with that choice MP’s could be more inclined to vote for the deal. This could keep the euro supported.
With no high impact eurozone data, investors will remain glued to Brexit headlines ahead of Saturday’s vote in Parliament.
US Manufacturing Production Slips To 4 Month Low
The mood towards the dollar remained sour in the previous session as fears over the health of the US economy increased. Earlier in the week US investors digested soft US retail sales data; a sign that the US consumer was starting to wobble. Yesterday US dollar investors were faced with disappointing US industrial production and manufacturing numbers. Industrial production declined -0.4% whilst manufacturing production dropped -0.5% the slowest pace of growth in four months. The weak data weighed on demand for the dollar.
|Why does poor economic data drag on a country’s currency?|
|Slowing economic indicators point to a slowing economy. Weak economies have weaker currencies because institutions look to reduce investments in countries where growth prospects are low and then transfer money to countries with higher growth prospects. These institutions sell out of their investment and the local currency, thus increasing supply of the currency and pushing down the money’s worth. So, when a country or region has poor economic news, the value of the currency tends to fall.|
Today US dollar investors are analysing the latest figures from China. Chinese GDP fell to 6%, its worst level since the mid 1990’s. However, Chinese industrial production grew by an impressive 5.8%, well above expectations. The latter helped ease fears over the impact of the US – China trade dispute on the world’s second largest economy. As a result, the dollar is trading with a negative bias.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 EUR = 1.12829 USD
Here, €1 is equivalent to approximately $1.13. This specifically measures the euro’s worth against the dollar. If the U.S. dollar amount increases in this pairing, it’s positive for the euro.
Or, if you were looking at it the other way around:
1 USD = 0.88789 EUR
In this example, $1 is equivalent to approximately €0.89. This measures the U.S. dollar’s worth versus the euro. If the euro number gets larger, it’s good news for the dollar.
This publication is provided as general information only and is not intended as an exhaustive treatment of its subject. TransferWise Inc. and its affiliates (“we” or “us”) expressly disclaim any contractual or fiduciary relationship with you on the basis of the content of this publication, and you may not rely thereon for any purpose. You should consult with qualified professionals or specialists before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from us. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date, and DISCLAIM ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.