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EUR/USD: Dollar Soars As US GDP Beats Forecasts

30th October 2019

The euro trended higher versus the dollar in early trade, reaching a high of US$1.1127. Stronger than forecast US GDP data then boosted the dollar, sending the euro US dollar exchange rate southwards. The pair is currently testing the key US$1.11 level.

The euro advanced early in the session despite mixed data from the eurozone. Supporting the euro, the French GDP came in ahead of analyst’s expectations at 0.3% quarter on quarter, slightly above the 0.2% forecast and in line with the previous quarter. On an annualised basis the French economy expanded by 1.3%.

Also offering support to the euro was better than expected German inflation figures. Inflation crept up 0.1% month on month in October, marginally ahead of the zero-increase forecast.

That’s where the good news ends. Eurozone consumer confidence figures are the latest in a long line of gloomy reports. Economic sentiment was at the lowest level since February 2015 as confidence in the industrial sector declined to the lowest level in over 6 years. The fact that sentiment for the dominant services sector was also down at the lowest level since 2015 is also a concern.

The data suggests that the European Central Bank may be forced to ease monetary policy further in order to help shore up the economies.

Fed Decision Up Next

After a weak start on Wednesday, the dollar is soaring thanks to a better than expected GDP reading. Data showed that the US economy grew at 1.9%. This was slightly slower than the 2% growth experienced in the second quarter. However, it was ahead of the 1.6% analysts had predicted. The better than forecast growth was the result of strong consumer spending, as well as government spending.

The data calmed fears that the US economy was slowing and also quelled concerns that the slump in US manufacturing sector was spilling over into the consumer sector.

Investors will now look ahead to the Federal Reserve interest rate decision. The Fed are broadly expected to cut interest rates by 0.25%. Investors will watch carefully to see whether the Fed are intending to continue the cutting cycle. Given the strong GDP data, this seems unlikely, potentially the dollar.

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.