The euro fell steadily lower versus the US dollar across the previous week. The pair closed at US$1.0991 down 1.4%. As a result, the euro was down 0.8% versus the dollar across the months. The euro has fallen versus the greenback every month this year except for June, dropping a total of 4% year to date. The pair is trading flat in early trade on Monday. Today is a public holiday in US.
| 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. |
Fears over the health of the German economy weighed on demand for the euro as week. On Friday Retail sales data from Germany showed that sales slipped by -2.2% month on month. This was significantly worse that what analysts were expecting and the largest monthly decline in retail sales this year.
Dismal retail sales data were just the latest in a slew of disappointing readings from Germany. Business sentiment dropped sharply, a larger than forecast decline in inflation and an increase in unemployment point to Europe’s largest economy heading towards a recession. Weakness in the manufacturing sector as the exporter is hit by the slowing trade amid the US — Sino trade dispute is showing signs of spilling across into the rest of the economy.
The European Central Bank will almost certainly loosen monetary policy when it meets this month. This could be through cutting interest rates of through other means.
| Why do interest rate cuts drag on a currency’s value? |
| Interest rates are key to understanding exchange rate movements. Those who have large sums of money to invest want the highest return on their investments. Lower interest rate environments tend to offer lower yields. So, if the interest rate or at least the interest rate expectation of a country is relatively lower compared to another, then foreign investors look to pull their capital out and invest elsewhere. Large corporations and investors sell out of local currency to invest elsewhere. More local currency is available as the demand of that currency declines, dragging the value lower. |
Today Germany will stay in focus at the start of the new week as investors look towards German manufacturing pmi data. Analysts are predicting that the sector remains in deep contraction. A weak reading could pull the euro lower.
Fed Talk & Trade Headlines To Move Dollar
The dollar strengthened through the previous week as tensions between the US and China eased slightly. President Trump claimed that China was ready to make a deal. Whilst China didn’t confirm that message, it did say that it would not retaliate immediately to the US tariff imposed on Chinese goods this weekend. Investors have viewed the easing of tensions as a positive for the US economy amid fears that the trade dispute is negatively impacting on economic growth.
This week, investors will be watching US — Sino trade dispute headlines closely. They will also be paying plenty of attention to Federal Reserve policy makers who will be giving speeches across the week. Any signs that the Fed are considering loosening policy amid economic slowdown fears could pull the dollar southwards.
