Euro Continues To Slide against the US Dollar, Bet For an ECB Rate Cut Increase

Euro Continues To Slide against the US Dollar, Bet For an ECB Rate Cut Increase - European Central Bank
Bill Cascade   NEW 12/07/2019 00:00:00 Finance

On Tuesday, the Euro continued its slide, this time declining below the lowest value in June. Notably, the common currency hit $1.1206 while the US dollar held strong in its upward trajectory. 

Re-assessing expectations of a rate cut

Before the non-farm payroll data, investors were betting on a deep rate cut by the US Fed. To be sure, the greenback was under enough pressure to warrant such an action by the US Central bank. Investors were expecting a rate tightening by the Fed by 50 basis points. In fact, 25% of traders were sure of a rate cut chance by the said magnitude. 

But the chance evaporate soon after the non-farm payroll data was outed. As per the data, job growth was strong in June compared to the last two months. There were 224,000 jobs created in June compared to 160,000 which experts had anticipated the US Department of Labor to report. Notably, this is the highest job growth in five months.

Later on Wednesday, the Fed Chairman Jerome Powell will appear before Congress for testimony. Investors are counting on the tone which he will strike to get a clearer sense of where the greenback could be headed next. 

If the Fed Chair comes across as hawkish or neutral, the dollar is bound is continuing gaining against rivals. Basically, this would indicate that if there has to be a rate cut, it will be quite limited.

The growth impetus is pushing the US dollar index to newer heights every waking day. On Tuesday, the DXY added 0.1% to settle at 97.488.

US:DXY Chart

Source: MarketWatch

Soft growth in the EU, weak fundamentals

The rebounding dollar has seen bets against major rivals grow. On Friday, July 5, the common currency slid 0.1% to settle at $1.1273. The currency ended the week with a 0.8% weekly loss relative to the greenback. 

On Tuesday, the Euro extended its decline to $1.1206 which put it at the lowest level in three weeks against the US dollar. 

There is increased selling pressure on the EUR as investors’ bets for a chance for rate easing grow. This possibility is strengthened by the fact the nominated Chair of the ECB, Christine Lagarde, appears to be dovish. 

Further, the accommodative stance adopted by the ECB is on the back of weak fundamentals within the EU. The weak growth has affected the economic sentiment within the EU and the Euro area markedly.

The economic sentiment survey for June 2019 in the EU was crucial in helping investors price the EUR. Notably, the Economic Sentiment Indicator (ESI) was markedly lower than the previous month at 103.3. This implies a decline of about 1.9 points.

To add salt to an already festering wound, there are fears of a recession in Germany, EU’s economic powerhouse. At the core of the fears is the stubbornly weak manufacturing data coupled with tensions in global trade. 

The most worrying trend is the fall in foreign orders for German goods, considering that the economy is export-driven. Latest figures show that there was a 2.2% month on month drop in manufacturing orders in May. Compared to the same month last year, the drop is a whopping 8.6%. 




More articles

US Dollar Under Pressure On Weak Economic Data

Bill Cascade   NEW 09/10/2019 00:00:00 Forex

The US dollar is struggling for direction, having lost momentum on weak employment data. The greenback has registered impressive gains, in recent months, as other majors currencies continued to edge lower...

Buy to Open Definition, Explained in Detail with Example

Bill Cascade   NEW 08/10/2019 00:00:00 Guides

There are four types of options that are commonly used in the industry. Alongside buy to open, these include buy to close, sell to open and sell to close. Here we look at precisely what the basic definition of buy to open means, alongside offering an example of it at work. By analyzing the term further, we can provide a better understanding...

Swiss Franc Eyes Fresh Gains On Safe Haven Appeal

Bill Cascade   NEW 07/10/2019 00:00:00 Forex

The Swiss franc has lost some ground against other major currencies in recent trading sessions. For starters, it is trading at two-week lows against the Euro, which has tumbled to two-year lows in recent months. While the weakness of the Swiss franc stems from weak economic data, a bounce-back could be in the offing going forward...

Turkish Lira On The Recovery As Swedish Krona Woes Persist

Bill Cascade   NEW 06/10/2019 00:00:00 Forex

Turkey's government remains optimistic about the Lira appreciation, against the dollar, over the next three years. Economic forecasts by the finance ministry indicate the government expects the country’s economy to expand by 5% next year...

Argentines Turn To the Polls To Avert Economic Crisis And Peso Volatility

Bill Cascade   NEW 03/10/2019 00:00:00 Finance

The country is struggling with one of the highest levels of inflation at 54%. High inflation levels have affected the way of life, as prices of goods continue to rise, and small businesses struggle to remain afloat... 

Free margin - Credit