Euro Dips Against Dollar as US Fed Raises Rates

The euro US dollar traded in a tight range on Tuesday as the pair consolidated above $1.1060. The euro US dollar exchange rate pushed to a high of US$1.1084, before closing Tuesday’s session just above the flat line at US$1.1077. The pair is trending lower in early trade on Wednesday amid increased demand for the safe haven dollar.

Support for the euro was muted in the previous session following disappointing eurozone construction data. Construction output in the bloc unexpectedly decline 0.7% year on year, rather than expanding 2.7% as analysts had forecast.

Macro Data Remains Gloomy

The data cast a fresh shadow of doubt over the health of the eurozone economy. Even though the construction sector is not an important part of the eurozone GDP, investors were still unnerved by the reading. Economic growth in the eurozone showed some level of resilience in the third quarter, however, concerns still remain as to whether growth can be achieved in the fourth quarter.

Today investors will look towards the release of the eurozone financial stability report which could garner some attention, as could the German producer price index. Analysts are predicting that that German producer prices declined -0.4% year on year in October. Producer prices measures inflation at the factory gate. Weak wholesale inflation often points to weak retail inflation figures down the road.

ECB Minutes To Boost Euro?

The key risk event for the euro this week will be the release of the minutes from the European Central Bank meeting in October. This was Mario Draghi ‘s final meeting before Christine Lagarde filled his shoes this month.

At the meeting the ECB kept interest rates on hold. However, the latest few meetings appear to have been more fractious than normal, as a growing number of policy makers are feeling uncomfortable with the idea of unlimited quantitative easing. The minutes released today could give further insights into those discussions. Signs that an increasing number of policy makers are pushing back on the prospect of further easing, could help the euro advance versus its rivals.

Investors Seek Dollar’s Safe Haven Properties

The dollar traded flat in the previous session as investors remained sceptical over the chances of the US and China reaching a trade deal soon. Reports on Tuesday suggested that trade talks between the two powers have stalled. Trump unnerved investors further by saying that the US would just raise tariffs on Chinese imports if a deal was not agreed with China. Elevated tensions between the US and China have slowed global trade and dragged on global sentiment. In the US, the manufacturing sector has slowed considerably. More trade tariffs could exasperate the problem and cause the US manufacturing sector to slump lower.

Senate’s HK Bill Hits Sentiment

News that the US Senate has passed a bill supporting the pro-Democracy protestors in Hong Kong will only aggravate tensions between the US and China. As a result, risk appetite has decreased, boosting demand for the safe haven dollar in early trade on Wednesday.

FOMC Minutes In Focus

US dollar traders will now turn their attention to the release of the minutes from the Federal Reserve monetary policy meeting, the FOMC. The minutes to the FOMC meeting on 30th October are unlikely to reveal any new information regarding monetary policy. However, they could add some colour to the deliberations which lead to the Fed cutting interest rates for a third time this year and to signal no more cuts going forwards.

There were two dissenters at the October meeting. Investors will be keen to learn more about the reasons behind the committee split.

Since the FOMC, Federal Jerome Powell gave two testimonies before Congress. This could mean that the minutes to the Fed meeting are to a degree, old news. However, investors will still want to listen to the deliberations of other policy makers.

In his testimony before Congress, Jerome Powell spoke positively about the US economy. However, the recovery of the economy is slow. So slow that monetary policy doesn’t need adjusting according to Powell. The prospect of low interest for longer disappointed dollar traders and dragged the dollar lower across the two-day appearance.

Retailers Earnings Disappoint

This week is a big week for US retailers, which are reporting their third quarter earnings. These earnings will also be watched by dollar investors. Why? Because with holiday season in the US well underway commentary from the retailers covering holiday shopping will give investors further insight into the health of the US consumer. Tuesday’s numbers from Kohl and Home Deport were disappointing with both firms cutting guidance which has raised concerns. The dollar eased slightly following the results. The earnings reports come after US retail sales figures rebounded in October, increasing 0.3% month on month in October, after a surprisingly weak September.

 

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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