The euro has dropped below the key psychological US$1.08 level and touched US$1.0778, the lowest level since April 2017 level in early trade on Thursday.
The dollar has advanced across the board on an upbeat economy and on coronavirus fears. Meanwhile softening German consumer confidence has dragged on the euro.
GFK Consumer Confidence Drops
Data from GFK market research group revealed that German consumer confidence was set to weaken slightly in March as the coronavirus outbreak has contributed to uncertainty among households. The slowdown or stop of production in China and the slowdown in consumption could affect production in Germany, potentially leading to reduced working hours in German factories or even staff reductions. These fears drag on consumer confidence.
Up until now the slump in the German manufacturing sector hasn’t spilled over into the consumer sector. However, with softer consumer confidence expected in the coming month, the German consumer sector could also experience a slowdown.
The minutes from the European Central Bank will be released later today.
US Dollar Underpinned By Fed Minutes & Safe Haven Flows
The US dollar is advancing as investors digested the minutes from the latest US Federal Reserve monetary policy meeting and amid increased flows into safe haven assets on coronavirus fears.
The minutes showed that the Fed were cautiously optimistic over their ability to keep interest rates on hold across the year despite new risks. The Fed acknowledged the risks associated from the coronavirus outbreak. However, they also gave a relatively upbeat assessment of the US economy, expecting consumer spending to remain on a firm footing and job gains to expand at a healthy rate. Whilst the dollar’s reaction was fairly muted immediately following the release, the dollar has gained overnight.
Fears surrounding the coronavirus outbreak are rising again on Thursday after the number of cases in South Korea doubled and after two people on the Diamond Princess died from the killer virus. Beijing has injected some liquidity into the financial system and reduced the requirements for household loans in an attempt to support the Chinese economy. However, some market participants doubt that is sufficient.