- Update: Euro still weak despite German trade figures – Strong trade surplus and current account
- EUR USD stuck around opening levels – Both currencies facing headwinds
- German industry boosts Euro – Monthly industrial production beats forecasts
- US Dollar softened by Chinese data – Trade figures point to weakening Chinese economy
- EUR USD exchange rate forecast – Further Chinese data could weigh on US Dollar
Better-than-expected German data, combined with poor Chinese reports weakening the US Dollar, has allowed the EUR USD to edge ahead.
USD Weakness Enables Euro Advance despite Weak French Production
Industrial production in France has disappointed predictions for June, showing an accelerated contraction rather than mild growth. After declining -0.5% in May, production slumped to -0.8% on the month in July, instead of climbing to 0.3% growth in line with economist’s predictions.
However, the US Dollar is weakening today, allowing the Euro to advance. EUR USD exchange rates are currently trading up 0.2% around 1.1144.
(Last updated 10/08/2016)
EUR USD Recovers after US Productivity Concerns
German trade largely bettered expectations in June, although seasonally-adjusted exports only recovered from -1.8% to 0.3%, instead of registering growth of 1.1% on the month. Imports clocked in at 1% after last month’s 0.1% growth. The trade balance and current account both significantly beat forecasts, with the former increasing to a surplus of 24.9 billion and the latter climbing to 26.3 billion, both against predictions of 23 billion.
Although it weakened earlier in the session, the EUR USD exchange rate edges towards the end of the session up 0.2% thanks to concerns over US productivity. Non-Farm productivity declined 0.5%, marking the third straight quarter of decline. This weakens the long-term outlook of the US in terms of worker wages and inflation.
EUR USD Loses Earlier Gains; Donald Trump to Cut Corporation Tax
Investors are awaiting a speech by Republican Presidential candidate Donald Trump, in which he will announce his economic plan for reforming the US economy. Among the measures detailed will be policies on immigration, regulation, taxes and trade. One of the reforms announced will be a cut in income and corporation tax, which would make the US a more attractive place to do business.
(Last updated 15.50, 08/08/16)
Monthly German Industrial Production Figures Strengthen Euro (EUR); Italian Banking Concerns Still Weighing
The latest German industrial production data has printed above expectations, showing a strong increase on the month. The non-seasonally adjusted writing down allowance (WDA) grew 0.5% year on year as expected after the previous month’s -0.4% loss. However, monthly growth accelerated to 0.8% instead of 0.7%, while the previous decline was revised smaller to -0.9%. Removing the dragging effect from energy and construction, German industry grew 1.5% in June.
The Euro has been further buoyed by a stronger-than-expected Sentix Investor Confidence score for August, which printed at 4.2 instead of advancing from 1.7 to 3.0.
However, headwinds from the Italian banking sector continue to weigh on the common currency. Markets have been taken by surprise by the announcement from credit rating agency DBRS, which stated it would be reviewing Italy’s credit rating. DBRS is the last major credit ratings agency to give Italy an ‘A’ rating. The European Central Bank (ECB) requires member states to have at least one ‘A’ crediting rating from the big agencies in order to include them in top band in terms of collateral requirements. Should DBRS downgrade Italy’s rating, Italian banks will face higher costs if they want to use government bonds as collateral to secure loans from the European Central Bank.
US Dollar (USD) Trending Tightly as Chinese Data Causes Market Jitters
Chinese data has weighed on the global economic outlook today, unsettling the US Dollar because of its potential to keep Fed interest rates on hold for longer. While the trade surplus increased unexpectedly from $48.11 billion to $52.31 billion, both imports and exports continued their strong decline. Imports posted a drop of -12.5%, up from -8.4% on the previous month and against forecasts of a slowing to -7%. These figures point to weakening economic activity in China, a prospect that is weighing on the long-term Federal Reserve policy outlook.
However, Fed hike bets remain higher than they were last week thanks to Friday’s strong jobs figures from the US Non-Farm Payrolls report. July saw 255k people newly employed, 75k above forecast. June had also experienced a strong rebound of 287k, although this was partly due to the dire figures from May’s report, which showed job creation under a quarter what was forecast. Markets had expected June’s figure to have been a correctional rebound, so a strong July report has pointed towards a strengthening of the jobs market.
Positive labour markets conditions have boosted hopes of a Fed rate hike for two reasons. The first is the obvious fact that a strong jobs market indicates a strong economy. The second is that some analysts believe the strong data could undermine the Republican Presidential campaign; many economists and market participants would prefer a Clinton presidency as they have more faith in her economic policies. Economist Jared Bernstein, who previously served in the Obama administration, explains;
‘The idea that Republicans are touting, that the job market is a wreck, is clearly belied by the data. What matters most to people isn’t GDP growth, it’s jobs and wages.’
This is keeping Fed hike bets strong, with a hike predicted in May 2017. The US Dollar has marginally softened as a result of the Chinese data, but Fed expectations are providing some support for the ‘Greenback’.
Euro US Dollar (EUR USD) Exchange Rate Forecast; ‘Greenback’ Faces Further Drag from Chinese Inflation
The day’s important data has been released, so the next major developments for the EUR USD exchange rate pairing will come tomorrow. It’s a fairly light day for Eurozone data, with only tier-3 German trade data in the docket.
The US is set to release wholesale inventories figures, but the biggest US Dollar movement could come from the Chinese consumer price index, released during the Asian session. Inflation is predicted to weaken from 1.9% to 1.8%, which could exacerbate the market caution sparked by today’s weak trade figures.
Current EUR USD Conversion Rates
The Euro US Dollar (EUR USD) exchange rate is currently trading between 1.1077 and 1.1105, while the US Dollar Euro (USD EUR) exchange rate is currently trading between 0.9001 and 0.9022.
