GBP/EUR: Euro Slips vs Pound As Trade Wars Hit Germany

The Euro is easing off session highs in early trade on Tuesday, although remains comfortably over US$1.08. The Euro versus US Dollar exchange rate is extending gains from the previous session, which saw the pair close 0.3% higher at US$1.0723.

At 08:00 UTC EUR/USD is trading up 1% at US$1.0830 amid an improved mood in the market. However, PMI readings from the eurozone and the US today could create high levels of volatility.

German PMI Data Mixed

The Euro advanced in the previous session after Eurozone Ministers of Finance officially agreed to activate the general escape clause of the EU fiscal framework, in an unprecedented move. This means that normal budgetary rules are now suspended. This, together with the ECB’s Pandemic Emergency Purchase Programme (PEPP) paves the way for significant fiscal spending by national governments to prop up their economies in the face of the coronavirus hit.

Investors will now turn their attention to Purchase Manager Index data (PMI’s). German PMI data showed that manufacturing activity contracted to 45 on the index, better that the 40 forecast. However, the service sector completely slumped to 34, down from 52.5 in February as the lock down took effect. A level of 50 separates expansion from contraction.

Investors will look towards the eurozone release shortly. Analysts are forecasting manufacturing activity to drop to 39.5 and service sector activity to drop to 39.8, down from 49.2 and 52.6 respectively.

US Dollar Eases As Hopes Of Rescue Package Rise

The US Dollar eased back in the previous session after the Federal Reserve announced unlimited bond buying programme in addition to a barrage of new measures to help keep the market and economy ticking over. For the first time the Fed will include corporate bonds in its quantitative easing programme, at the central bank releases its full firepower to cushion the impact of coronavirus on the US economy.

The move by the Fed comes as Congress failed again to agree to a $2 trillion economic relief package. Although progress is being made which has boosted risk sentiment across the Asian session and into the European session.

Investors will now look ahead to US PMI releases. Analysts are forecasting manufacturing PMI to show activity dropped to 44 and activity in the service sector dropped to 42 in March, down from 50.7 and 49.4 respectively.


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