EUR/USD: Euro Hits 11 Day High vs Dollar On ECB Talk & Trade Deal Pessimism

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Mixed trade headlines and central bank talk saw the euro extend gains versus the dollar. The euro US dollar came within touching distance of US$1.11 before easing back towards the close.

The pair struck a high of US$1.1090, an 11-day high before slipping back to close the day at US$1.1072, in its fourth straight day of gains. The pair is holding SUS$1.1070 at the start of trading on Tuesday.

Monday was a quiet day as for eurozone economic data. However, European Central Bank officials were out in force, giving speeches ahead of new ECB President Christine Lagarde’s speech at the end of the week.

ECB Officials Talk Up Fiscal Stimulus

The euro found some support from comments from the ECB members as they reaffirmed their stance calling for fiscal stimulus. The Slovenian ECB President Bostjan Vasle said that he believed that economic growth in the eurozone had stabilized and that the ECB’s recent stimulus package was working as intended. He said that he didn’t see any reason for making changes to the growth outlook. After the ECB cut overnight interest rates and restarted its bond buying programme in September, Vasle acknowledged that the ECB’s space to ease policy further was limited, putting a burden on fiscal policy makers.

Fiscal stimulus has an inflationary effect; the euro rallied on the prospect of additional government spending. The ECB’s chief economist Lane also commented that Europe needs a big conversation among fiscal policymakers about how to stimulate the economy.

Christine Lagarde To Push For Fiscal Stimulus?

ECB President Christine Lagarde will speak on Friday in Germany. The former chief of the International Monetary Fund has been vocal in her support for fiscal stimulus for the eurozone. Investors will be keen to see how Christine Lagarde changes up the messaging on fiscal stimulus. The former President Mario Draghi harped on about fiscal stimulus for his entire tenure, without any results. Will Christine Lagarde try a new angle to attempt o get the likes of Germany on board?

Today euro investors will look towards low tier data in the form of construction output figures for the eurozone in September. In August construction output fell -0.5% month on month, a weak reading today could weigh on demand for the euro. Wednesday sees the release of the ECB’s financial stability review. Thursday could see an increase in volatility for the euro, as investors digest OECD economic outlook and the minutes from the latest European Central Bank meeting.

Trade Messages & Fed / Trump Meeting Weigh On Dollar

The dollar trended lower versus its peers on Monday amid mixed trade messages and after Federal Reserve Chairman Jerome Powell was called to the White House to speak with President Trump.

Reports that the White House would extend a licence to allow US companies to do business with Chinese telecom firm Huawei competed with reports that China was growing increasingly sceptical about reaching a trade deal with the US anytime soon. According to media reports, China is sceptical a phase one trade deal can be reached amid the reluctance of the US to rollback trade tariffs.

Optimism has turned to pessimism so many times throughout these trade talks which investors have followed for months. What is becoming clear is that if the trade deal was easy, then it would have been signed by now.

Trump Exerting Pressure On Fed?

The dollar also came under pressure after it was revealed that Federal Reserve Chair Jerome Powell attended a meeting at the White House with President a Trump and Treasury Secretary Steven Mnuchin. Trump tweeted that they discussed the economy, employment level, the dollar and inflation. The meeting comes after relentless criticism from President Trump over Federal Reserve monetary policy and the strength of the dollar.

Investors will be concerned that Trump is exerting pressure on Jerome Powell to ease policy further in an attempt to weaken the dollar, hitting demand for the dollar. Fed Powell has continually insisted that the decisions that the Fed take over monetary policy are based entirely on information that bears on the outlook of the economy.

Mid-Tier Data Ahead Of Wednesday’s FOMC Minutes

Turning to US economic data. Today there are no high impacting releases. Investors could glance towards mid-tier data, such as housing starts and building permits, which are expected to show an improvement in October compared to September. Stronger data could help the dollar rebound.

Looking ahead Wednesday sees the release of the minutes to the US Federal Reserve monetary policy meeting. This is the meeting where the Federal Reserve decided to finish cutting rates for this cycle. Jerome Powell appeared before Congress last week and repeated the message that the US economy was in recovery mode, but that policy is appropriate. Dollar investors were disappointed by the prospect of low rates for longer. Should the minutes repeat this message, the dollar could edge lower.

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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