The euro continued to rebound in early trade on Tuesday, after picking up from a low of US$1.0806 on Monday. The euro US dollar exchange rate managed to close the session on Monday 0.1% higher.
EUR/USD is up 0.1% at US$1.0865 at 08:45 GMT. This is mainly a dollar weakness story as investors start to price in the increased chances of an interest rate cut by the Federal Reserve.
German GDP at 0%
The euro moved tentatively higher in early trade on Tuesday, even as data revealed that the German economy remains stuck in stagnation. Fourth quarter GDP growth came in at 0% quarter on quarter, down from 0.2% QoQ growth in the third quarter of the year.
The data comes following German IFO business climate figures on Monday, which revealed an unexpected rise in business morale. The index increased to 96 in February, up from 95.9, showing that so far German business confidence is unfazed by the coronavirus outbreak. German PMI data last week was also more upbeat than investors were expecting.
Coronavirus will continue to be a key driver for the euro. Any gains are likely to be capped amid fears that the coronavirus outbreak in Italy could through the euro zone’s third largest economy into recession.
Dollar Drops On Rate Cut Fears
The dollar slipped lower across the latter part of the previous session and is extending those losses in early trade on Tuesday. The sell off in the dollar comes as investors upped the odds of the Federal Reserve cutting interest rates sooner rather than later to cushion the blow from coronavirus.
The number of coronavirus cases has now surpassed 80,000. The number of cases in South Korea has jumped whilst the number in Italy continues to rise sharply. The financial markets are realising that this isn’t solely an Asia issue.
Investors are now pricing in a 23% probability of a rate cut in March and now a 50-50 chance of an interest rate cut by the Federal Reserve in April.
The dollar could see some support later today with the release of consumer confidence figures. Analysts are expecting household morale to tick higher in February.