EUR/USD Exchange Rate Rangebound, German Manufacturing Sector Remains in Contraction Territory
The Euro US Dollar (EUR/USD) exchange rate held steady this morning, with the pairing currently trading around $1.114 after the German Manufacturing PMI fell below forecasts and remained in contraction territory at 41.9. Germany’s services sector also eased from 51.5 to 51.2, its weakest since September 2016.
Phil Smith, Principal Economist at IHS Markit, commented:
‘Hopes of a return to growth in Germany in the final quarter have been somewhat dashed by the October flash PMI numbers, which show business activity in the Eurozone’s largest economy contracting further and underlying demand continuing to soften.’
The EUR/USD exchange rate suffered today with data bolstering gloomy forecasts that the Eurozone’s largest economy might face a recession in the near term.
Due to a slowing world economy, Germany’s export-reliant manufacturers have continued to struggle, with business uncertainty linked to the US-China trade dispute and the UK’s “paused” Brexit deal.
Today also saw the Eurozone’s Markit PMI Composite figure fall below the consensus of 50.3 to 50.2.
Chris Williamson, Chief Business Economist at IHS Markit was downbeat, saying:
‘Optimism about future prospects deteriorated further in October to the lowest for over six years, commonly linked to global trade tensions, Brexit-related worries and increasingly gloomy economic forecasts.’
USD/EUR Exchange Rate Flat, US Construction Giant Reveals 6% Drop in Sales
The US Dollar (USD) held steady against the Euro (EUR) today after the ‘Greenback’ started to trend lower on renewed fears for US economic growth.
The construction and manufacturing giant, Caterpillar, revealed a 6% drop in sales and an 8% overall profit drop per share in the third quarter of 2019. As the company represents a bellwether for the economy, US markets have become increasingly concerned for a US economy recession.
Courtney Yakavonis, a Wall Street Analyst at Morgan Stanley, commented:
‘[Caterpillar] multiple has been pressured for the majority of 2018 and 2019 trading at under 11 times earnings per share for the majority of the year. We still see potential for the multiple to re-rate as consensus 2020 earnings per share estimates fall, especially if continued progress is made on trade [and] Brexit.’
We could see the USD/EUR exchange rate sink today if the US goods orders figure confirms predictions and sinks to -0.2% later on this afternoon. Any further signs of deterioration for the US economy would further exacerbate fears that the Federal Reserve will push stimulus measures in its next policy meeting.
EUR/USD Outlook: Could Euro Rise on UK-EU Brexit Extension News?
Euro traders will be looking ahead to tomorrow’s German consumer confidence GfK for November, which is expected to ease slightly from 9.9 to 9.8.
Tomorrow will also see the release of Germany’s IFO business climate and currency assessment figure for October. Any signs of a decrease could further weaken market confidence in the single currency as this would provide further evidence of a grim Eurozone economic outlook.
Meanwhile, US Dollar investors will be awaiting tomorrow’s Michigan consumer sentiment report for October, which is expected to hold at 96.
The UK’s Brexit developments could provide some uplift for the Euro, however, if the EU27 grant the UK an extension beyond its current October 31 deadline. This would boost confidence in the European currency as it would effectively eliminate a 2019 no-deal between the UK and EU.
