After dipping to a 2-year low of US$1.0905 overnight, the euro us dollar exchange rate is heading higher on Friday. However, the pair remains below US$1.0950.
The euro moved higher today despite data showing that eurozone economic sentiment plunged in September to its lowest level in almost 5 years. The European Commission’s monthly indicator of the economic mood deteriorated to 101.7, down from 103.1 in August and well below analysts’ expectations of 103. Sentiment has soured as trade tensions between US and China and potentially the US and Europe, depress confidence in industry.
However, it wasn’t all bad news and the data also indicated that morale improved in the service sector. These figures could help calm investor fears that the manufacturing slump in the eurozone and particularly Germany, is spilling over into the bloc’s dominant service sector where the majority of the population are employed.
Fears of a recession in Germany and possibly the eurozone have weighed on demand for the euro across the week, amid a batch of poor economic stats. Whilst today’s figures could go some way to quelling fears, investors will want to see more solid evidence of resilience in the service sector before confidence in the outlook for the euro increases.
With no more eurozone data due out today, the euro will now trade to the tune of the US dollar.
Dollar Drops Amid Mixed US Data Against
The dollar eased lower on Friday after strong gains earlier in the week and as investors took stock of the developing impeachment case against President Trump. Whilst there is a chance that President Trump could be impeached, with a Republican Senate he is unlikely to be turfed out of office. With this in mind the dollar has been concentrating on other drivers.
PCE is the Federal Reserve’s preferred measure of inflation. As city analyst predicted, PCE ticked higher to 1.8%. However, US durable goods orders were less encouraging, missing the mark. Durable goods orders are important because consumers tend to purchase them when they feel confident about their current economic situation and the outlook. The weaker figure weighed on demand for the dollar.
|Why does poor economic data drag on a country’s currency?|
|Slowing economic indicators point to a slowing economy. Weak economies have weaker currencies because institutions look to reduce investments in countries where growth prospects are low and then transfer money to countries with higher growth prospects. These institutions sell out of their investment and the local currency, thus increasing supply of the currency and pushing down the money’s worth. So, when a country or region has poor economic news, the value of the currency tends to fall.|
This afternoon US consumer sentiment figures could help support the dollar. Analyst predict a slight increase in sentiment in 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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