The euro US dollar exchange rate continues to hover around 34 month lows as covid-19 continues to take its toll and as investors look ahead to German ZEW sentiment data. At the time of writing EUR/USD is trading at -1 point at US$1.0833.
Euro
Recent data suggests that the German economy is in trouble. GDP figures revealed that growth in the largest economy in Europe stagnated at the end of 2019. Industrial production and factory orders show that the manufacturing sector is still in decline. Whilst manufacturers optimism picked up slightly at the start of the year following the first phase US China trade deal, uncertainty looks to be set to make a comeback as the Chinese covid-19 outbreak could be as concerning as the trade war.
So far, there hasn’t been a central banker who hasn’t identified the virus outbreak as a cause for concern for global economic growth. Germany, being a manufacturing country and an exporter is more vulnerable than most.
With this in mind, there is a strong possibility that business and consumer confidence could remain depressed. Analysts are expecting German ZEW expectations index to drop to 22 in February, down from 26.7 the previous month. However, European wide sentiment is expected to jump to 30 from 25.6. This estimate appears rather optimistic given that France and Italy, in addition to Germany are experiencing a deep slump in manufacturing.
US dollar
The US dollar is pushing higher versus its major peers on Tuesday as coronavirus fears boost safe haven buying. Apple warning that disruption in China from coronavirus will mean revenue falling short of forecasts has unnerved investors. With most stores in China either closed or on reduced hours sales of Apple products will be lower. iPhone manufacturing partners are located outside Hubei province and whilst these have reopened, they are ramping up more slowly that expected.
Whilst the negative impact of coronavirus on companies and economies has been widely discussed, to announce impact to revenue guidance just mid-way through February paints a worse picture than expected. The IMF has warned that there could be a cut of 0.1 – 0.2% to global growth, although they also stressed that there is still a lot of uncertainty about the virus’ impact.