Risk aversion amid continued concerns over coronavirus spreading beyond China boosted the safe haven dollar on Thursday. Meanwhile the euro was dragged lower after the European Central Bank President, Christine Lagarde, failed to impress investors.
The euro US dollar exchange rate slumped to a fresh low for 2020 of US$1.1037 before picking up slightly into the close. The pair is edging lower again in early trade on Friday.
As was widely expected, the ECB kept interest rates on hold at 0% and the central bank’s bond buying programme remained unchanged at €20 billion per month. The ECB also launched a strategic review, the first in two decades, in an attempt to determine whether the current price stability target is appropriate. The review could result in the target inflation rate being adjusted further down the line.
This was Christine Lagarde’s second meeting as President of the ECB and market participants were still learning how to read her. However, there was a distinct disappointment that she failed to acknowledge the improvement in eurozone economic data. This left the euro vulnerable and it sold off.
Today investors will be focusing squarely on the release of eurozone PMI data and the German manufacturing PMI data. Whilst data has been showing a bottoming out in the eurozone economy, the German manufacturing sector has shown no signs of rebounding. Analysts are expecting activity in the German manufacturing sector to remain deep in contraction in the preliminary January reading at 44.5, up marginally from December’s 43.7. The figure 50 separates expansion from contraction.
The eurozone composite reading, which gives a good indication of the health of the economy as a whole is expected to improve to 51.2 up from 50.9. A strong reading could lift the common currency.
Dollar Investors Look To PMI Data
The safe haven dollar advanced on Thursday as concerns grew over the spread of coronavirus. These concerns are continuing in early trade on Friday, even as the World Health Organisation said it was “too early” to declare a global health emergency. At the time of writing 25 people are now confirmed to have died from the virus and over 800 have been infected in over 10 countries. However, these number could be much greater.
Looking ahead investors will focus on US manufacturing and service sector PMI numbers for signs that the sectors are continuing to rebound after falling into contraction at the end of last year.
|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.