GBP/EUR: Will US Hostility To EU Pull Euro Lower vs. Pound?

After heavy losses across the previous week, the euro is edging cautiously higher versus the US dollar on Monday. The pair has is trading at US$1.1031, just off the three-week low of US$1.1017 struck earlier in the session. However, this is more to do with dollar weakness than any euro strength.

The euro is failing to capitalise on dollar weakness after German producer price data, which measure inflation at wholesale level, dropped by 0.1%. This was worse than what analysts had forecast. Whilst the PPI is only secondary data, weak inflation at wholesale level indicates weak inflation at retail level further down the road. Furthermore, the gloomy numbers add to concerns over the health of the German economy.

In Spain, Europe’s fourth largest economy, the elections resulted in a hung Parliament for the second time this year. Whilst Caretaker Prime Minister Pedro Sanchez’s party PSOE came out on top, the chances of him being able to form a coalition has declined substantially. There could be months of negotiations before a government is formed. Whilst the euro holding up for now on the news, drawn out negotiations could start to take their toll.

There is no more eurozone data due today. Investors will look ahead to tomorrow German EZW sentiment data. Analysts are expecting sentiment to have lifted slightly in November, which could support the euro.

Federal Reserve Speaker Up Next

Whilst US – China headlines supported the dollar across the previous week, they are acting as a drag today. Last week optimism had increased that the US and China were inching closer to a phase one trade deal. Furthermore, China had said that the two sides had agreed to the gradual rolling back of trade tariffs. Over the weekend, President Trump denied that the US agreed to rolling back levies, leaving investors unsure of the current position between the US and China.

There is no high impacting US data for investors to focus on. Instead investors will turn to Federal Reserve Boston President Eric Rosengren who will speak in Oslo. Whilst Eric voted against cutting rates, his stance towards the December meeting will be eyed.

 

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.

 


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