The Forex Market Enters A Risk-On Mood, And The Euro Is Benefiting
Risk sentiment across the forex market is on the rise, and it is being spurred on by a series of positive reports. For starters, much of the period after the start of this year has been dominated by weak economic data, slow economic growth and heightening political instability, all on a global scale. As such, major currencies like the Euro have been affected.
Nonetheless, it seems the period is coming to an end as positive news begins to trickle in. To be sure, the common currency is under pressure from slow economic growth in the Eurozone. Particularly, Italy has been a significant drag on the overall growth of the whole region. Early this month, Giovanni Tria, Italy’s Minister for Economy, said that the economy is in recession.
Positive China PMI lifts risk appetite
Further, the Eurozone depends so much on the emerging economies for growth. Interestingly, most of the emerging market economies were also having their problems. Further, China was seemingly headed for a hard landing after incredible growth for decades.
All this seems to be changing as China reported PMI data that was stronger than expected. Particularly, the Purchasing Managers Index (PMI) jumped to 50.5 from the previous figure of 49.2. As per Bloomberg, this is the best PMI performance that China has posted in seven years.
Following the positive data, risk sentiment rose across the globe as traders scrambled for risky assets. Notably, the Euro firmed against the US dollar peaking at 1.1254 earlier on Wednesday. The currency continued to perform well against the greenback after weak US data. The disappointing data has weakened the dollar across the board which is also partly the doing of the rebounding risk appetite.
To be sure, the US Dollar Index is evidence that the greenback is fairing badly against significant competitors. The index was last flirting with the 97.00 value on Wednesday which is 0.20% weaker compared to previous trading sessions.
The US dollar and safe-haven currencies decline
The GBP/USD pair is bullish due to the weaker dollar and stronger pound sterling. Notably, the pair recovered some of the losses made before a crucial vote in the British Parliament on Brexit. By the close of Wednesday trading session, the pair was trading at around 1.31790 (as shown in the figure below). In particular, the parliament voted in what gives the British PM more vigor to ensure that Britain does not crush out of the European Union without a significant deal.
Investors expect the pound to remain firm against the greenback at least for the coming weeks due to the ability of the parliament to find consensus on Brexit for the first time. Notably, British PM Theresa May held talks with opposition leader yesterday in a bid to forge a strong unity in the parliament as the second deadline for Brexit approaches.
Interestingly, the rising risk appetite is affecting safe-haven currencies like the Japanese yen. Notably, the yen traded at levels last seen two weeks ago yesterday as it plunged to 111.575 yen against the greenback. With the end of the U.S.-China trade war in sight, one can only expect that the currency will still sink against the dollar.