The Euro is heading lower on Tuesday, snapping a three-day winning streak. The Euro US Dollar rate settled on Monday +0.1% at US$1.0830 on an upbeat mood in the markets as European countries eased lock down measures.
At 08:15 UTC, EUR/USD is trading -0.1% lower at US$1.0814, paring gains from the previous session as the market mood dampens and as plummeting oil prices unnerve investors.
German Economy Set To Contract -6.6% in 2020
The Euro is under pressure amid growing concerns over the effect that the coronavirus lock down is having on economies in the eurozone. Whilst governments are starting to ease lock down measures, it is becoming clear that this will be a very gradual process. As a result, any economic recovery will also be more long-winded than initially expected.
The well-respected German IFO institute forecasts that Germany’s economy, the largest economy in Europe will contract by -6.6% in 2020. A -1.9% contraction is expected in the first three months of the year, followed by a -12.2% decline in the second quarter. The institute expects the German economy to return to pre-coronavirus levels by the end of 2021.
US Dollar Rises As Oil Drops
The US Dollar is advancing versus its major peers on Tuesday as investors buy into its safe haven properties. The continued collapse in the price of oil is unnerving investors. West Texas Intermediate slumped by a further 12% in early trade on Tuesday dropping to just $11. According to analysts at Goldman Sachs Investment bank oil storage could fill up in the coming weeks, prompting additional cuts from OPEC.
OPEC agreed to cut oil production by 10 million barrels per day. However, those cuts will not begin until 1st May and furthermore, the cuts barely scratch the surface of the estimated 30 million barrels per day decline in oil demand that the covid-19 lock down has brought. Broader market sentiment has been closely tied to oil price movements in recent weeks.
Investors will now look ahead to US consumer confidence figures which are due to be released later today. Analyst are expecting morale to have plummeted to 88, down from 120 amid the coronvirus lock down. When households are unconfident about their job prospects and the health of the broader economy they spend less. This is bad news for the US economy.