The US dollar roared higher on Wednesday following some hawkish comments from Federal Reserve Chair Jerome Powell, following the US central bank’s latest interest rate decision.
- Early departure of ECB hawk raises risk of additional monetary loosening
- Weak PMIs signal likelihood of third quarter German recession
- EUR Monthly lows: £0.87, $1.08, C$1.44, A$1.59, NZ$1.70
- EUR Monthly highs: £0.90, $1.11, C$1.48, A$1.63, NZ$1.76
Markets continued to bet on the prospect of further European Central Bank (ECB) monetary loosening after prominent hawk Sabine Lautenschläger announced her early resignation.
Lautenschläger’s premature departure suggests that the central bank could move to loosen monetary policy again before the end of the year as the balance among policymakers shifts towards dovishness.
The euro came under additional pressure as September’s finalised set of Eurozone manufacturing and services PMIs painted an underwhelming picture.
With the headline Eurozone composite PMI weakening to just 50.1, barely avoiding stagnation, investors saw little cause for confidence in the economic outlook.
The German economy showed particular signs of weakness as slowing service sector growth failed to offset the persistent manufacturing sector decline.
As investors now see high odds of the Eurozone’s powerhouse economy falling into a technical recession in the third quarter EUR exchange rates were left biased towards further losses.
Underwhelming Eurozone and German consumer price index figures added to bets that further interest rate cuts could be on the cards in the future, with inflation still falling short of the ECB’s 2% target.
Worries over the health of the German economy look set to pick up further on the back of August’s factory orders and industrial production data.
As forecasts point towards another month of contraction in German production, reflecting the global trade slowdown, this could put fresh pressure on EUR exchange rates.
Unless Germany can demonstrate greater signs of economic resilience the growing risk of a third quarter recession looks set to drag the single currency lower across the board.
Focus will also fall on the latest German trade data, which could add to the bearish atmosphere.
If the trade surplus continues to narrow, signalling a decline in export volumes, investors could find further incentive to sell out of the euro.
With trade tensions between the US and EU showing signs of flaring up once again, following the announcement of fresh US tariffs, worries over the outlook of the Eurozone economy are likely to persist.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)