The euro is slipping lower versus the US dollar as the new week begins in risk off trading. After rallying 0.6% across the previous week and hitting a high of US$1.1097, the euro US dollar exchange rate is on the decline in early trade on Monday as coronavirus fears and the number infected escalate.
At the time of writing the EUR/USD is under pressure trading -0.2% lower at US$1.1070.
Euro
The euro is on the back foot in early trade on Monday despite encouraging data from the bloc. Figures from Italy, France and most importantly Germany show that the manufacturing sectors are showing signs of improvements. Whilst manufacturing activity in France and Italy remained in expansion territory, activity in Germany contracted, but at a slower pace than previously. This could be a tentative sign that the slowdown in the manufacturing sector is bottoming out.
The data comes following German retail sales at the end of last week which disappointed, declining -3.3% on the month, despite German consumer morale unexpectedly improving.
US dollar
The dollar is being lifted by risk off flows. Statistics show that the number of cases of conronavirus has risen to 17,000. 360 people have died, including the first death outside of China. The Chinese financial markets opened overnight for the first time since the Chinese New Year and experienced heavy selling pressure as investors looked to move out of riskier assets such as equities.
The People’s Bank of China injected $175 billion in liquidity into the financial markets via a reverse repo operation. This is the single largest injection of liquidity in over a year and highlights the concerns that the Chinese authorities have over the impact of coronavirus on the Chinese economy.
Recent US data has underwhelmed. US dollar investors will now turn their attention to ISM manufacturing figures later today. Analysts are expecting the data to show signs of recovery following December’s low of 47.2. These figures will serve as a first hint towards Friday’s US non-farm payroll.
