The euro closed lower versus the US dollar for a fifth straight session on Monday. The common currency trended steadily southwards against the greenback in the previous session hitting a 10-day nadir of US$1.1004. The euro is edging cautiously higher versus the US dollar in early trade on Tuesday.
German consumer confidence data is helping the euro crawl higher today. The forward looking Gfk household sentiment index is set to rise 9.7 points in December, up from 9.6 in November. The strong levels of consumer sentiment in Germany are preventing the economy from slipping into a recession. Even as the manufacturing sector is in deep contraction German GDP managed to expand by 0.1% in the third quarter, avoiding two consecutive quarters of contraction, which is a technical recession.
Consumer confidence is closely watched because a confident consumer will tend to spend more. This is not only supportive of the economy but also creates inflationary pressure lifting the probability of monetary policy tightening rather than loosening by the central bank. Whilst the German labour market remains firm, consumer confidence will remain buoyant.
German Economy Bottoming Out But Not Rebounding
German data was also under the spotlight in the previous session. The German IFO survey for November was the latest signal that the slowing of the German economy could be starting to bottom out. The headline IFO figure, Germany’s most prominent leading indicator, increased to 95 in November, in line with analysts’ expectations and up from 94.7 in October. This was the third consecutive increase for the index after 17 declines in 21 months. That said, it is also worth noting that the headline figure is still well below where it was even in July, whilst the economy may be bottoming out it is still a very long way from rebounding.
Delving deeper into the figures there were still plenty of reasons for investors to be concerned. The order book in the automotive industry is still only at level last seen 6 years ago. High inventory levels and a thin order book does not bode well for the manufacturing sector going forward.
There is no more eurozone economic data due for release today. Euro investors will look towards German inflation data due on Thursday.
Trade In Focus For Dollar Investors
The dollar was stronger versus all major currencies on the first day of this holiday shortened week, owing to improved risk sentiment across the financial markets. Trade headlines were the principal driver of US dollar strength. Optimism that the US and China are closing in on a phase one trade deal sent US stocks to fresh record highs, boosting demand for the greenback. This is not the first time this month that investors have become more confident that a deal was imminent, only for nothing to materialise. However, there is growing optimism that there is a difference this time.
Moves by China to increase penalties on Intellectual Property theft have been well received by the market. These moves are noteworthy because they are the first time that China has publicly acknowledged that the violation of IP rights is significant. Following the move by China, President Trump came out and said that the two sides were very close to a trade deal. The US National Security Adviser Robert O’Brien said that a phase one trade deal could happen before the end of the year. Trade deal optimism sent US stocks to fresh record highs, lifting demand for the dollar.
US Consumer Confidence
In addition to trade headlines, investors will also digest a barrage of economic data including US trade balance, house sales and US consumer confidence. Analysts are expecting consumer confidence to have ticked higher in in November to 127, up from 125.9. A higher reading would mean that US investors are less worried about the US — China trade war, which weighed on September’s 9 month low reading. Sentiment increasing just prior to the holiday shopping period would be a positive sign for the US economy.
Fed speakers will also be hitting the wires over the coming days and prior to the Thanksgiving break. The Federal Reserve have been quite clear that they have no intention of cutting interest rates again this year, barring any unforeseen shocks to the economy. The broad message from the Fed is that the US economy is recovering from a slow patch earlier in the year. The Fed also believe that the US economy is recovering at such a slow pace that monetary policy is adequate where it is. The prospect of no more rate cuts is underpinning the US 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. |
