Update 16:30 BST 24/07/2019:
After hitting its worst levels since May earlier in the day, the Euro to US Dollar (EUR/USD) exchange rate remained near those lows for the remainder of Wednesday’s European session.
Investors had no reason to buy the Euro (EUR), as the morning’s concerning PMI data worsened concerns that the European Central Bank (ECB) would be even more dovish in its July policy decision tomorrow.
These concerns kept pressure on the Euro even after the afternoon’s mixed US data left the US Dollar (USD) weak as well.
Markit’s US PMI manufacturing projection printed at the stagnant figure of 50.0 – worse than forecast. This caused the US Dollar to weaken versus some other currencies, but it was able to hold against a weak Euro.
Original post:
Euro to US Dollar Exchange Rate Hits Monthly Low amid Central Bank Bets
Markets continue to speculate interest rate cut bets for both the European Central Bank (ECB) and the Federal Reserve, but the Euro to US Dollar (EUR/USD) exchange rate has been tumbling in recent sessions as the Euro (EUR) becomes the weaker of the two.
Attempts for EUR/USD to recover on Federal Reserve interest rate cut bets have been limited due to ECB interest rate cut bets. EUR/USD has been trending lower since the middle of the month.
Last week saw EUR/USD drop lower within the interbank region of 1.12, but this week’s losses have been more notable so far.
At the time of writing, the EUR/USD interbank level was trending near 1.11 – which was the pair’s worst level since May.
Still, there is plenty of key US data due for publication before the end of the week which could cause notable US Dollar (USD) movement in the coming days.
Euro (EUR) Exchange Rates Fall Lower as July PMIs Deepen Eurozone Manufacturing Concerns
Concerns that the Eurozone economy is still suffering an extended period of slowdown has kept investors speculating that the European Central Bank (ECB) could take a more dovish stance on monetary policy, and this is keeping the Euro (EUR) pressured.
Some signs of resilience in parts of the Eurozone’s economic activity have not been enough to bolster market optimism, and this morning’s July PMI projections for the bloc from Markit contained some worrying stats.
Germany’s key manufacturing PMI projection showed manufacturing activity contracting even deeper, at 43.1. The figure was expected to improve slightly to 45.1.
As a result of the weaker German manufacturing, overall Eurozone manufacturing contracted at 46.4 and the composite print unexpectedly weakened to 51.5.
It deepened fears that the Eurozone economy was still seeing an extended period of slowdown, and analysts noted that Germany was at risk of recession due to the worrying manufacturing performance. According to Phil Smith, Principal Economist at IHS Markit:
‘The performance from Germany’s goods producers in July is the worst recorded by the survey in seven years, with the renewed weakness mainly stemming from an accelerated drop in export orders–the most marked seen in over a decade.’
US Dollar (USD) Exchange Rates Benefit from Rival Weakness despite Mixed US Data
Despite this week’s US data being generally disappointing this week so far, and speculation still high that the Federal Reserve could take a more dovish stance on US monetary policy going forward, the US Dollar (USD) has been strengthening against the Euro (EUR).
The US Dollar has been benefitting from market demand for safe haven currencies, amid comments from economists that the US-China trade war was hurting China’s economy more than the US economy.
Comments from Federal Reserve officials indicating that the bank is unlikely to become too aggressively dovish just yet have also supported a recovering US Dollar.
This has made it easier for the US Dollar to recover against a weak Euro. The currencies are rivals and often see a negative correlation with one another.
Euro to US Dollar (EUR/USD) Exchange Rate Investors Await US PMIs and ECB Decision
There is still plenty of influential Eurozone and US news on the way for the remainder of the week, with key US data due every day from today through Friday, and the key European Central Bank (ECB) policy decision set to take place tomorrow.
US PMI projections for July from Markit will be published during today’s American session. While not as influential as ISM’s US PMIs, the data could still give investors a better idea of how the US economy is performing this month.
If the data, or US durable goods orders and growth data in the coming days, surprises investors, it could cause a shift in Federal Reserve interest rate cut bets ahead of next week’s Fed decision.
The big event for Euro investors this week will be tomorrow’s ECB policy decision.
The bank is not expected to make any changes to Eurozone monetary policy this week, but as Eurozone data continues to fall short of forecasts, expectations for a more dovish tone from the bank are rising.
If the ECB is more optimistic than expected about the Eurozone economy at tomorrow’s policy decision though, the Euro to US Dollar (EUR/USD) exchange rate could recover.