The euro US dollar exchange advanced early in the session to a high of US$1.1107, before paring some gains. The pair is currently trading 0.1% higher on the day, slightly below the key US$1.11 level.
The euro trended slowly higher in a fairly dull start to the trading week. With no high impacting eurozone data due until later in the week, investors were paying attention to geopolitical developments.
The mood towards the euro improved after Donald Tusk said that the EU will accept the UK request for a Brexit extension. The EU have agreed to offer a Brexit “flextention” of 3 months, up until the end of January 2020. This means that the UK will not leave the EU this Thursday. The avoidance of a no deal Brexit, which would also be damaging for eurozone economies has helped lift the euro.
Whilst the avoidance of a no deal Brexit is good news, Brexit uncertainty will continue to weigh on the eurozone going forward. Last week European Central Bank President Mario Draghi cautioned of the risks affecting the eurozone in a parting warning as he steps down as President. Brexit along with slowing global growth and slowing global demand are key risks for the bloc and could slow the bloc’s economic growth further. The ECB cut overnight interest rates and restarted the bond buying programme in September. The central bank may need to act again.
| 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. |
Dollar Eases On Positive Trade News
The dollar slipped lower at the start of the week amid encouraging US — China trade headlines. US President Trump said today that he was expecting to sign a trade deal with China at the APEC meeting later in November. These comments have had a positive impact on market sentiment. The improved sentiment means that investors are not looking for the safe haven qualities of the dollar. As a result, investors are selling out of the dollar.
Investors will look ahead to a busy week of high impacting events and data releases for the US dollar. These include the Federal Reserve monetary policy announcement, US GDP data and non-farm payroll data.
| 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. |
