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The euro US dollar exchange rate closed flat on the day on Wednesday in a lacklustre session. The pair briefly pierced US$1.10 before closing at US$1.1008. The pair traded a tight range. The euro continues to find solid support from the key psychological US$1.10 level.
The pair advanced in early trade on Thursday, before quickly giving up gains and heading back to the flat line. The euro US dollar exchange rate continues to hold just above US$1.10.
Euro: German Inflation & Industrial Production
The euro failed to advance in the previous session even as investors digested inline German inflation data and better than forecast eurozone industrial production numbers.
German inflation increased 0.1% month on month in October, as analysts forecast. This equates to an increase in consumer prices of 1.1% on an annual basis. Investors neither cheered the fact that inflation isn’t falling, nor showed disappointment over the weak inflation which is still a significant distance from the central bank’s 2% target.
The euro also failed to react to better than forecast eurozone industrial production. Eurozone factory output improved in September for the second straight month. Industrial output across the bloc rose 0.1%, resulting in a milder annual contraction than expected. The data indicates that the downturn in the sector could be moderating. This would usually boost the euro, instead the common currency.
Germany Avoids Recession
The euro spiked higher on news that Germany narrowly avoided a technical recession. The German economy grew 0.1% quarter on quarter in the third quarter, exceeding the -0.1% contraction that analysts had forecast. The German economy contracted in the second quarter -0.1%. Two consecutive quarters of contraction are a recession. Whilst the euro jumped immediately following the results, the euro failed to hold onto gains. The fact is that whilst Germany has avoided recession, its economy is still extremely weak. The European Central Bank may need to loosen monetary policy to support the slowing economy, which is weighing on the euro.
Will Eurozone GDP Disappoint?
Investors will now look ahead to eurozone GDP figures. Analysts are forecasting growth of 0.2% quarter on quarter in the third quarter, keeping growth in line with the second quarter. On an annual basis growth of 1.1% is forecast. Any sign of weakness in eurozone growth could drag the euro lower, as investors would assume that the ECB would be more inclined to ease monetary policy further.
Dollar: Muted Reaction To US Inflation Report
The dollar shrugged off a mixed inflation report on Wednesday. Consumer prices increased at a faster pace than forecast in October, lifted by fuel and food costs. Inflation as measured by the consumer price index (CPI) ticked up to 1.8% year on year in October, up from 1.7% the previous month and a three-month high. Despite the increase in inflation, the annual pace of growth remains below the Fed’s 2% target. Core inflation which discounts more volatile items declined from 2.4% to 2.3%.
Federal Chair Powell’s Testimony
Dollar investors spent much of Wednesday looking ahead to Federal Reserve Chair Jerome Powell’s Testimony to Congress on the state of the US economy. In prepared remarks he said that interest rates were unlikely to change anytime soon, as long as growth continues. Jerome Powell considers that monetary policy is appropriate for the risks to outlook. Powell identified slowing global growth, inflation and trade among the threats.
The dollar barely reacted to the remarks. Federal Reserve Jerome Powell gave the market nothing new to digest, there was nothing in the comments that investors didn’t already know. For this reason, the dollars’ reaction was muted.
Dollar’s Day Ahead
Today Jerome Powell will sit for a second time before Congress. Investors will continue to listen closely for any further clues as to the health of the US economy and the direction of monetary policy. However, after yesterday’s measured performance no fireworks are expected.
On the US economic calendar there are several mid-tier data releases, namely continuing claims and initial jobless claims, which investors could glance towards.
Fed speakers will be in focus later in the session with speeches from Federal Reserve officials Clarida, Evans, Bullard, Kaplan and Bullard all hitting the wires. By the end of the session investors should have a good understanding as to where the Fed sits as far as a rate cut in December is concerned and policy going forwards. According to the CME FedWatch Tool investors are only pricing in a 3% probability of a rate cut in December.
Any fresh developments on the US — China trade talks will be watched closely. Mixed messages from the Chinese and Trump have left investors unsure as to what progress has been made. On the one hand, President Trump said a phase one trade deal could be near. However, he also threatened more tariffs on Chinese goods if the deal didn’t materialise soon.
Today the trade talks have hit another snag, this time over agriculture purchases. This news, plus weak Chinese data and more trouble in Hong Kong is weighing on sentiment. The dollar is supported as investors seek its safe haven properties.
| 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. |
