Despite the weekend’s global trade developments making investors much more willing to take risks, the Euro to US Dollar (EUR/USD) exchange rate was not able to capitalise on the safe haven US Dollar’s fresh weakness. This was partially due to underwhelming Eurozone ecostats, weighing on market demand for the shared currency.
Concerns for slowing Eurozone growth have prevented EUR/USD from holding advance attempts over the past week. Last week saw EUR/USD slip just slightly, from 1.1337 to 1.1317, as Eurozone data prevented the Euro from capitalising on risk-sentiment. Even as safe haven currencies weakened on Monday, EUR/USD was only able to climb slightly to 1.1350.
The Euro, which is typically negatively correlated to the strength of the US Dollar, advanced slightly on Monday as investors digested the outcomes of the weekend’s US-China trade developments.
The news dampened global growth fears and made investors more willing to take risks again. As a result, the safe haven US Dollar weakened and the Euro benefitted.
However, the Euro was unable to capitalise on the US Dollar’s losses, as investors remained concerned about the Eurozone’s mixed economic outlook.
Following last week’s news that Eurozone inflation had unexpectedly slowed, which weighed on European Central Bank (ECB) interest rate hike bets, Monday data showed that Eurozone manufacturing was still slowing.
French, German and overall Eurozone manufacturing PMIs all beat projections in November, but still notably printed lower than October’s figures.
German manufacturing slid from 52.2 to just 51.8. Similarly, the overall Eurozone manufacturing PMI slowed from 52 to 51.8.
The US Dollar, on the other hand, was driven primarily by reaction to the US-China trade truce throughout Monday’s trade session.
During the weekend’s highly anticipated G20 summit in Argentina, US President Donald Trump and China President Xi Jinping held a broad formal meeting that ended with the nations announcing a truce on months of escalating trade tensions between them.
The nations agreed to avoid further escalations in trade actions, such as tariffs, for 90 days. During this period, the nations will look to hold wide-ranging negotiations.
The news doused market fears about slowing global growth, and as a result safe haven currencies like the US Dollar were sold.
While analysts expressed concern that just three months was not enough time for the US and China to reach agreements on its wide ranging tensions and issues, the expected lack of tariff escalation for a little while still calmed markets.
The US Dollar’s losses were limited slightly, as Monday’s US data continued to indicate that the US economy was performing strongly.
ISM’s November manufacturing PMI for the US printed at 59.3, rather than slipping slightly from 57.7 to 57.6 as expected.
Amid a lack of notable Eurozone or US data due for publication today, Euro to US Dollar exchange rate investors are more likely to remain focused on US-China trade reaction.
Eurozone PPI data for October will be published, as will US IDB/TIPP economic optimism index figures for December.
The US Dollar’s weakness was the primary cause of EUR/USD gains on Monday, but unless there is further optimism about US-China trade relations, the US Dollar’s downside trend may not last too long.
The Euro, on the other hand, is still generally unappealing as investors expect the Eurozone economy will continue to weaken.
As a result, the Euro to US Dollar exchange rate’s potential for gains may be limited unless the market’s safe haven selloff continues, or Eurozone retail and growth data due later in the week impresses investors.