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The dollar had a bruising week last week. The euro was able to capitalise on dollar weakness and advanced 0.3% across the week. The pair experienced most of those gains in the latter part of the week closing at US$1.1052. The euro is advancing against a weaker dollar at the start of the week.
Germany Avoids Recession
The euro was supported in the previous week by some better than expected macro-economic releases. German GDP was slightly better than what analysts had been expecting. The German economy expanded by 0.1% in the third quarter, meaning that Europe’s largest economy narrowly avoided a recession. Whilst this was a relief for investors, growth in Germany is still extremely weak.
ZEW German economic sentiment and eurozone industrial production were also stronger than what analysts had pencilled in under pinning the common currency.
EU Trade
Friday 14th November was the deadline for President Trump to impose trade tariffs on EU autos and is set to be pushed back further. In a speech by the US President last week, Trump criticised the EU for its terrible trade barriers, which has kept tensions elevated between the two sides. Investors will keep an eye on this story. Any trade disruption or a move towards trade tariffs could weigh heavily on the euro.
OECD Economic Outlook & ECB Minutes
This week the eurozone economic calendar is quiet until Thursday, when there is a double hit. Firstly, the OECD Economic outlook is due to be released 10am GMT. Analysts expect the report to highlight weak growth and an uncertain outlook for the bloc, as global downside risks mount. The latest report from the OECD back in September pointed to growth of just 1.1% in 2020 and 1% in 2021.
Later the same day the minutes from the latest European Central Bank will be released. Analysts are expecting the minutes to highlight concerns from policy members over weakness in economic growth and inflation, which is stagnant at just 0.7% growth year on year, well below the ECB’s 2% inflation target.
Christine Lagarde Speaks On Friday
Whilst the ECB loosened monetary policy in September, the central bank could be forced to take further action. New ECB President Christine Lagarde will speak this week in Frankfurt. Christine Lagarde has been vocal about the need for fiscal support from governments in her role at the IMF and she is expected to continue driving this message home in her new role. The euro could struggle to make any meaningful gains until there is a plan in place by eurozone governments for a significant increase in fiscal stimulus.
Dollar Declined In Challenging Week
The dollar was out of demand versus its peers across the previous week. The greenback’s selloff gained traction in the latter part of the week following Federal Reserve Jerome Powell’s appearance before Congress and amid growing trade optimism. Chinese state media reported on Sunday that the US and China had constructive talks on Saturday but failed to provide any further details on the timing of a deal. Trade deal optimism is denting demand for the safe haven dollar at the start of the new week.
Fed Chair Powell’s Testimony
Whilst Fed Chair Jerome Powell gave an upbeat assessment of the US economy, he also made it clear that the current policy was appropriate for the risks that the US economy faced. Fed Chairman Powell is holding onto the view that the US economy is recovering but the slow pace means that monetary policy needs to remain accommodative. Whilst the Fed aren’t about to cut interest rates, the central bank is showing no signs of looking to tighten monetary policy either. The prospect of low rates for longer weighed on demand for the dollar.
Trade Headlines
As optimism grew of progress in the US — Sino trade talks, the dollar also slipped lower. White House Adviser Larry Kudlow fuelled speculation of a trade deal between the two powers, boosting risk appetite. Chinese state media also reported “constructive” talks over the weekend. As risk sentiment improved the need for the safe haven US dollar declined.
Fed Minutes
Looking ahead the US economic calendar is quiet at the start of the week. On Wednesday, the minutes to the Federal Reserve monetary policy meeting will be released. These are the minutes in which the Fed indicated that its easing plans were now on hold after three consecutive interest rate cuts.
The Fed will remain in focus across the week with speeches expected from New York Fed President John William, Cleveland President Loretta Mester and Minneapolis Fed President Neel Kashkari. Investors will be listening carefully for any additional policy insight amid the ongoing trade uncertainty.
Retail Earnings
Gap, Macy’s, Home Depot and Urban outfitters are just a few of the big US retailers reporting their third quarter results this week. The big stores are a key indicator as to whether the US consumer is still spending, even as the US manufacturing sector slumps and job creation slows. Signs of weakness could not only drag the stocks lower but also the US dollar.
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| 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. |
