The outlook amongst German business leaders has grown worse this month, but ‘Greenback’ weakness is boosting Euro US Dollar exchange rates.
- German business confidence at five-month low
- US Dollar weak as investors turn to high-yielding stocks
- Donald Trump approves oil pipelines
- US advance goods trade balance data could soften Euro gains tomorrow
The US Dollar has been abandoned today due to demand for high-yielding stocks, following the approval by Donald Trump of two oil pipelines, which investors believe is a sign of his ‘business friendly’ policy stance.
Morning Update, 27th Jan; The Euro is stuck below opening levels this morning, as investors await the start of today’s Ecofin meeting of EU finance ministers. Markets are waiting to see what officials have to say on the most pressing issues facing the Eurozone and European Union.
Afternoon Update, 26th Jan; Poor US labour market data has failed to slow the Euro US Dollar decline today. Initial jobless claims were expected to rise from 237,000 to 247,000, but instead clocked in at 259,000. Additionally, the advance goods trade balance deficit didn’t narrow by quite as much as expected, closing by -$300 million rather than the -$900 million expected.
Morning Update, 26th Jan; A slight improvement in German consumer confidence has failed to support EUR USD this morning, with the pairing weakening -0.1%. The latest GfK consumer confidence survey edged up to 10.2, beating the forecast rise from 9.9 to 10.0. Other data has not been so positive, with Spanish Unemployment clocking in at a still enormous 18.6% in the final quarter of 2016. While this represents an improvement above forecasts, the sheer extent of joblessness in the Iberian nation leaves little to celebrate about this result.
Weaker German Confidence Fails to Undermine Euro Thanks to US Dollar Weakness
The Euro US Dollar exchange rate is advancing this morning, although the extent of its gains has been curbed thanks to disappointing German business confidence results.
The latest results from a survey of around 7,000 business executives this month has shown improved assessment of the current conditions, but views on the business climate and expectations of the next six months weakened against forecast.
According to Clemens Fuest, President of Ifo;
‘The German economy made a less confident start to the year. Companies expressed greater satisfaction with their current business situation, but are less optimistic about their six-month business outlook.’
The current conditions index edged higher from 116.7 to 116.9 as predicted, but the business climate index weakened to a five-month low of 109.8 and expectations fell from 105.5 to 103.2.
Overall, the results are still strong compared to sentiment earlier in 2016, but the fact yesterday’s German PMIs weighed on the overall Eurozone measures has made traders extra sensitive to disappointing German data.
Investors Favour Stocks as Trump Enacts ‘Business-Friendly’ Decisions, Leaving USD Out in the Cold
Investors are in a good mood today, although they aren’t buying the US Dollar. After worrying recently about Donald Trump’s protectionist agenda, the markets have finally seen some evidence that the President will be just as swift in implementing his spending plans as he has been in carrying out his promises to tear up or withdraw from trade deals.
The President has approved two major oil pipelines abandoned by the Obama administration; Keystone XL and Dakota Access. Kathleen Brooks of City Index explains;
‘Trump also advanced the Keystone Pipeline project on Tuesday, something that President Obama slapped down. These first steps may not please climate change activists, but, as expected, they suggest that President Trump is ‘business friendly’ and the markets are greeting this with approval. Thus, stocks are in a strong position as we move to the middle of the week.’
This boost to business sentiment has therefore seen investors turn to the stock markets, as Trump’s fiscal plans will have a more immediate impact upon stocks than the US Dollar. Investors will have to wait for infrastructure spending measures to filter through to create new jobs and raise wages, consumer prices to rise and the Federal Reserve to decide to hike interest rates in response before the ‘Greenback’ sees real appreciation from the President’s plans.
Stocks are promising immediate gains, so the US Dollar is an unwanted asset today and is left languishing against the Euro.
Euro US Dollar Forecast; Low-Impact US Data Unlikely to Undermine EUR Today
There is no major Eurozone data left for release and, given the attitude currently gripping the markets, the day’s medium impact mortgage applications and house price index data is unlikely to alter the current US Dollar trajectory.
Tomorrow could be a different story, however. The Euro could find itself on the back foot, as low impact German consumer confidence data and a speech from the European Central Bank’s (ECB) Yves Mersch threaten to be overshadowed by the key US advance goods trade balance, amongst other data.
Forecasts for the advance goods trade balance predict a slight reduction in the deficit.
Interbank Euro US Dollar Exchange Rates
At the time of writing, Euro US Dollar exchange rates were trading in the region of 1.07, while US Dollar Euro exchange rates were trending around 0.93.