The euro is hovering around 34-month lows in early trade on Monday after slumping hard versus the US dollar across the previous week. At 0:830 GMT, EUR/USD exchange rate is trading flat at US$1.0838. The pair dived 1% across the previous week, extending losses of 1.3% from the first week of February.
The euro is continuing around the lows of last week amid ongoing concerns over the health of the eurozone, and more particularly the German economy. Last week the euro came under pressure as German GDP missed analysts’ expectations. Economic growth in Europe’s largest economy stagnated in the final quarter of 2019. Whilst this means that the German economy avoided contracting, the outlook remains weak at best. Industrial production and factory orders are still declining, which doesn’t bode well for economic growth going forwards and that doesn’t even take into account any slowdown effect from coronavirus.
Tomorrow attention will turn to ZEW German sentiment data. Should business confidence show signs of slipping, it could hit demand for the euro, as weaker sentiment points to weaker economic activity. Investors are already concerned that Germany could slip into contraction and possible a recession, weak confidence could fuel these fears further.
The US dollar traded flat versus its major peers in the previous week, amid calming concerns over coronavirus and amid mixed data.
Whilst consumer confidence and inflation were upbeat, industrial production and the control group in retail sales missed analysts’ expectations.
This week there are no major US economic announcements except for the minutes from the January Federal Reserve monetary policy meeting. However, given that the Fed has reaffirmed its stance on monetary policy several times in recent weeks, investors are not expecting any surprises. The Fed considered monetary policy appropriate at its current level.
News on Covid-19 will continue to dominate the financial markets and drive sentiment. Last week risk appetite improved despite rising numbers of infections and deaths. This week investors will attempt to gauge whether the Chinese authorities are containing the killer bug or not and the likely spillover effect on the global economy.