Positive sentiment weighed on the US dollar, lifting EUR/USD to a high of US$1.1146 on Monday. The euro US dollar exchange rate eased off its high to close the session up 0.1% at US$1.1135. The pair is holding steady in early trade on Tuesday.

With no high impacting eurozone data to digest investors turned to the German producer price index, a mid-tier release. The reading surprised to the upside, with inflation at wholesale level stagnating at 0% on a monthly basis and declining -1.3% year on year.

The data helped underpin the euro which also benefited from optimism surrounding the signing of the US – China phase one trade deal, which is due to take place on Wednesday. The German manufacturing sector has been negatively impacted by the US – China trade dispute, which hit global confidence and global demand. The exporter nation’s manufacturing sector has slipped into a deep contraction. Investors are hopeful that a good deal between the US and China could go some way to restoring global demand and lifting German factory orders.

More broadly demand for the euro has been mixed over recent weeks as some economic data suggests that the slowdown in the region’s economy could be bottoming out. Other data continue to highlight the slowdown in German manufacturing as problematic.

Today the eurozone economic calendar is light. Investors will look ahead German GDP data on Wednesday for further insight into the health of the economy.

US Inflation Set To Jump

Positive sentiment surrounding the signing of the US – China trade deal has weighed on demand for the safe haven US dollar. News last night that US will lift China’s currency manipulator tag ahead of the signing has added to the dominant positive mood among investors.

Today investors will look towards US inflation data due to be released later. Analysts are expecting a jump in consumer prices to 2.4% increase year on year in December, up from 2.1% in the previous month. This would be well above the Federal Reserve’s 2% target. Core inflation, which strips out more volatile items such as food and fuel is expected to remain steady at 2.3% year on year.

The Federal Reserve have said that they are pressing pause on policy for the time being. The central bank has also said it would need to see a significant and persistent jump in inflation to warrant hiking rates. A strong reading could lift rate hike expectations and 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.

 


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