The euro has started the year in a somber tone, falling 0.45% versus the US dollar since the beginning of January. The euro US dollar exchange rate closed last week at $1.1162, pulling back from the high of $1.1241 reached at the end of 2019. The euro is advancing in early trade on Monday.
The euro was out of favour last week amid continued concerns over the health of the Eurozone economy. Data from Germany dampened hopes of a turnaround in Europe’s largest economy. The German manufacturing pmi showed the sector sunk deeper into contraction in a December, declining to 43.7. The figure 50 separates expansion from contraction.
Offering some support to the common currency was Germany inflation data which showed that consumer prices unexpectedly increased to 1.5%, beating expectations of 1.2%. However, this remains below the European Central Bank’s 2% target.
Looking ahead, the euro macro economic calendar will remain in focus as investors await the release of German retail sales data. Analysts are expecting retail sales to have increased 1% month on month, up from -1.6%. Market participants will be looking for signs that the slump in the manufacturing sector hasn’t spilt over into the consumer sector.
Safe Haven Dollar
The dollar gained on Friday as increased geopolitical tensions in the Middle East boosted the greenback, overshadowing weak US manufacturing data.
Data showed that the US manufacturing sector contracted at the fastest pace since 2009. The December ISM manufacturing pmi dropped to 47.2 as the slump in the sector showed no signs of letting up, despite analysts expecting a slight improvement. The US manufacturing sector has been under pressure across the past year during the US – China trade dispute. With a deal between the two powers due to be signed this month, market participants will be hoping for a turnaround in the sector soon.
Risk sentiment has taken a turn for the worse amid rising tensions in the Middle East. With Iran vowing to take revenge for Trump’s slaying of a top Iranian General, investors across the financial markets are taking risk off the table and moving into safe haven assets such as 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.