After climbing 0.3% higher in the previous session the euro is losing ground versus the US dollar in early trade on Tuesday. The pair closed the previous session at US$1.1195 just shy of the session high of US$1.1206. The pair is currently trading below US$1.12.
The euro pushed higher in the previous session following a slew of encouraging macro data releases, prompting optimism that the slowdown in the Eurozone and particularly Germany could be bottoming out.
German retail sales beat analysts’ forecasts jumping an impressive 2.1% month on month in November. This was significantly ahead of October’s -1.6% decline. German composite pmi showed growth rather than the contraction in December, surprising to the upside. Whilst the Eurozone service sector pmi printed at 52.8 and the composite pmi figure which gives a good idea of the health of the economy as a whole printed at 50.9.
Euro investors will now look ahead to Eurozone inflation data. Analysts are expecting the numbers to show healthy price development with consumer prices increasing to 1.3% year on year, up from 1%. This increase is expected to be mostly due to rising oil prices. Core inflation, which strips out more volatile items such as food and fuel is expected to hold steady at 1.3%. The European Central Bank has shifted its focus towards core inflation in recent years. Should core inflation tick 0.1% higher to 1.4% it would hit its highest level in 6 years, a move which could boost the euro.
US ISM Non- Manufacturing Up Next
The US dollar traded on the back foot in the previous session as investors reassessed the probability of a US – Iran war. With investors considering the odds of a full-blown war receding, demand for the safe haven dollar declined.
Today dollar investors will look towards the release of the ISM non-manufacturing pmi data. Analysts are forecasting a print of 54.5 in December, up from 53.9 in November. The figure 50 separates expansion from contraction. A strong reading could lift the US dollar by calming fears of the manufacturing slump spilling over into the service sector, the dominant sector in the US economy.
|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.