Weak German Industrial Production Dents Euro US Dollar (EUR/USD) Exchange Rate
A surprise monthly contraction in German industrial production limited support for the Euro (EUR) this morning as worries over the outlook of the Eurozone’s powerhouse economy mounted.
Following on from Thursday’s underwhelming factory orders data this does not paint the most encouraging picture of the Germen economic outlook.
Even amid signs that trade tensions between the US and China are easing, to the benefit of the global economy, Germany remains under pressure thanks to diminished international demand.
This paves the way for the Eurozone as a whole to see a fresh loss of momentum in the fourth quarter, giving the European Central Bank (ECB) greater cause for dovishness.
As a result, the Euro to US Dollar (EUR/USD) exchange rate struggled to find any traction, even as anticipation mounted for the latest US payrolls report.
EUR/USD Exchange Rate Momentum Limited as Markets Brace for US Payrolls Report
After seeing a sharp boost on the back of the latest bout of market risk aversion the US Dollar (USD) failed to extend its uptrend today.
With the initial market shock that followed the arrest of Huawei CFO Meng Wanzhou easing the appeal of the safe-haven USD began to diminish.
Investors saw less incentive to favour the US Dollar over its rivals ahead of November’s US non-farm payrolls report, with forecasts pointing towards a smaller increase in employment on the month.
Evidence that the US labour market is struggling to tighten further would undermine confidence in the underlying strength of the world’s largest economy, to the detriment of USD exchange rates.
Any slowdown in average hourly earnings could also weigh heavily on the US Dollar, as weaker wage growth is likely to encourage the Federal Reserve to leave interest rates on hold for longer in 2019.
Euro (EUR) Exchange Rates Vulnerable Ahead of German Trade Data
Monday’s raft of German trade data is likely to provoke fresh volatility for the EUR/USD exchange rate if signs continue to point towards slowing economic growth.
Any narrowing of the trade surplus could weigh heavily on demand for the Euro, adding to worries over the outlook of the German economy.
Another month of contraction in exports would prove particularly discouraging for investors, even though the recent easing in US-China tensions could boost export volumes in the months ahead.
Unless German trade shows greater signs of resilience the mood towards the Euro is likely to sour, especially as political worries continue to hang over the future of the Eurozone.
Weaker US Inflation to Limit US Dollar (USD) Exchange Rate Upside
The US Dollar may come under pressure next week on the back of November’s US consumer price index data.
Although markets have fully priced in a December Fed interest rate hike any softening of the inflation rate could push back the timing of the next potential increase in interest rates.
With Fed policymakers already showing signs of increased dovishness any dip in inflation would add to the case for a prolonged pause in monetary tightening.
On the other hand, if the headline inflation rate continues to edge higher above the Fed’s 2% target this could give Fed hawks and USD exchange rates a boost.
Either way, the potential for Euro to US Dollar (EUR/USD) exchange rate gains may remain limited if markets remain in a more risk averse mind-set.