Euro Plummets to 22-Month Lows vs Dollar on Dismal Data
What’s been happening?
Pound Sterling – UK Markets
In the absence of Brexit-related developments and macroeconomic data releases from the UK, the British pound continued to weaken against the dollar and posted moderate gains vs the euro on Wednesday.
British Chancellor Phillip Hammond on Wednesday said that the Brexit uncertainty was the principal reason for the weak business investment in the UK. “The sooner we can bring Brexit to a conclusion, the better,” Hammond added.
Earlier in the day, the latest survey conducted by the Recruitment and Employment Confederation (REC) showed that the UK labour market remained surprisingly strong despite the Brexit uncertainty. Commenting on the survey, “The more positive figures on hiring for temporary workers suggest that many businesses are turning to agency work to help them navigate the unpredictability they currently face,” Neil Carberry, the REC’s Chief Executive, said. “This might be driven by waiting to see whether permanent hiring is justified, or by using additional labour to meet demand rather than making big capital investments.”
US Dollar – US Markets
The US Dollar Index, which measures the dollar’s value against a basket of six major currencies, extended its rally and rose to its highest level since early May of 2017. Although there were no macroeconomic data releases from the U.S., the greenback benefited from the flight-to-safety that was triggered following a mixed batch of earnings reports. Additionally, while speaking at an event at the Asia Society in New York, Iranian Foreign Minister Mohammad Javad Zarifescalating warned the U.S. of pursuing a ’very dangerous policy’ and added that the sanctions would not change Iran’s policy. The 10-year Treasury Bond yield fell nearly 2% on the day to reflect the sour sentiment. Furthermore, the dollar also took advantage of the demand shifting away from its major European rivals, namely the euro, on fresh signs of an economic slowdown in the area.
Euro – European Markets
German Ifo Institue’s Business Climate Index dropped to 99.2 in April from 99.6 in March and missed the market estimate of 99.9. Moreover, the Current Economic Assessment Index edged down to 103.3 from 103.8 and the Expectations Index arrives at 95.2 to fall short of the analysts’ expectation of 96.1. The Ifo’s chief economist noted that the industrial sector was dragging the economy and stated that the EU’s decision to delay Brexit did not help the German business climate improve. “Business Climate Index points to economic growth being weaker than the 0.8% forecast,” the economist added.
Later in the day, although the European Central Bank in its Monthly Bulletin highlighted that the bank was not overly concerned about the impact of possible U.S. tariffs, it failed to help the shared currency stage a meaningful recovery. The euro closed the day at its lowest level more than 22 months against the dollar and dropped to a weekly low vs the pound sterling. According to the results of an ECB study that simulated a two-way 10% increase in tariff and other trade barriers with the U.S., the eurozone car industry would incur losses of around 4%. “But escalating trade tensions could have grave consequences for the global economy,” the ECB said in its publication and added: “Consequences of the tariffs implemented last year pose only a modest adverse risk to the global and the eurozone outlook.”
What’s coming up?
UK: The Confederation of British Industry will release its Industrials Trends Survey on Thursday.
US: Weekly jobless claims, durable goods orders, and the Kansas Fed Manufacturing Activity Index will be featured in the U.S. economic docket.
EU: There won’t be any macroeconomic data releases from the euro area. Luis De Guinods, a member of the ECB Governing Council, is scheduled to deliver a speech on Thursday.