Euro Slumps To 2-Year Low As Trade Tensions Pile Up
The Euro is off to a not so good start this week after falling to its lowest levels since 2017 due to the rising trade temperatures. The Euro plummeted below $1.10, and the last time it traded at such levels was in May 2017.
The Euro’s weakening performance took place amid rising concerns over the trade situation especially due to the volatile Brexit situation and also the escalated trade standoff between China and the U.S.
The decline also happened after U.S. President Donald Trump complained about the weaker Euro and the US dollar growing too strong. POTUS noted that this situation makes U.S. exports less competitive.
The EUR/USD exchange rate traded as high as 1.0994 on early Monday morning before embarking on a bearish trend fueled by the Euro’s losses. This is after dropping below the 1.10 level on Sunday. The currency exchange rate hit its lowest price point at 1.0957 on Monday and continued with the bearish trend for the better part of Tuesday morning.
So far, the EUR/USD exchange rate's two-day low stands at 1.0925. The exchange rate turned bullish at around midday on Tuesday, indicating that the Euro was recovering some of its losses. The currency pair traded at around 1.0968 at the time of this press.
The impact of economic data
The latest economic data from the European region reflects analyst expectations, but the manufacturing sector still seems to be experiencing lower yields.
The Euro experienced a noteworthy decline in August, thus increasing the chances of aggressive easing measures by the European Central Bank. This means that the ECB might make an announcement about such measures during the upcoming monetary easing policy conference scheduled to take place on September 12.
ECB president Mario Draghi gave signs of potential easing measures to come during the last ECB meeting that was held in July. Sentiments of other ECB members also fueled the expectations of policy changes. Olli Rehn, an ECB council member, noted in August that the ECB had plans to roll out an impactful stimulus package that was aimed at surpassing market expectations.
Rehn revealed that the ECB expects a higher than anticipated interest rate cut compared to the 20bps consensus estimate. He also noted that there is still a high probability that the Euro will continue to drop, especially if the U.K. exits the E.U. through a hard Brexit. This means that there is still a significant risk in the market, especially as the Brexit D-day approaches rapidly.
Traders expect any announcements related to the Sino-U.S. trade war to influence a market shift as has been the in the past few months and especially last week. The markets experienced decreased trading activities last week after Trump announced that extra tariffs would be imposed on various Chinese products imported into the U.S.
China also responded by announcing that it would also raise tariffs on U.S. products.
The two sides have also expressed interest in holding negotiations in the hopes of bringing an end to the trade dispute which has dragged on for longer than anticipated after previous stalemates.