US Dollar (USD) Dented by ISM Manufacturing Index Contraction, Euro (EUR) Bearish ahead of Eurozone Inflation Today
An unexpectedly disappointing ISM Manufacturing Index saw the US Dollar (USD) weakened across the board yesterday, as domestic manufacturing activity was revealed to have slipped sharply from 50.1 to 4.8.6. Indicating that the sector has entered a state of contraction this somewhat dented the odds of a December interest rate hike from the Fed, although the ‘Greenback’ has since recovered some of its previous buoyance. Ahead of the latest Eurozone inflation gauge the EUR/USD exchange rate has been trending lower in the region of 1.6019.
With the US Dollar (USD) softened on the back of unimpressive Chinese manufacturing data today, the EUR/USD exchange rate has been making gains thanks to stronger-than-forecast German unemployment figures.
Euro (EUR) Weighed Down by Prospect of ECB Easing as German Retail Sales Contracted
As the final European Central Bank (ECB) policy meeting of the year approaches, traders have been taking a more cautious view of the Euro (EUR), with expectations of an expanded quantitative easing program weighing heavily on the appeal of the common currency. Monday’s weaker-than-expected German Retail Sales did little to discourage the probability of tougher monetary loosening, as the Eurozone’s powerhouse economy continued to display signs of economic weakness. Although the country’s November Consumer Price Index showed a slight uptick in inflationary pressure both on the month and on the year, this was not substantially bullish to encourage a general return to the Euro.
Nevertheless, US data also proved disappointing yesterday as the Chicago Purchasing Manager Index slumped substantially. While the September figure had strongly surpassed expectations, this marked decline somewhat dented market sentiment towards the US Dollar (USD). A discouraging Pending Homes Sales report, which defied forecasts by retreating from 3.2% to 2.1% in October, reduced the appeal of the ‘Greenback’ further.
US Dollar Currency News: USD Downtrends after Poor Chinese Manufacturing PMI Dents Odds of 2015 Fed Rate Hike
Surprising investors, this morning’s German unemployment data bettered forecast as the domestic Unemployment Rate declined from 6.4% to 6.3%. The number of unemployed within the German economy was found to have declined by 13,000 in November, offering a rather more optimistic picture of the labour market’s current state of strength. This bullish result was supported further by an increase in the finalised local Manufacturing PMI.
The odds of an imminent Federal Open Market Committee (FOMC) interest rate increase took something of a blow today, meanwhile, as the latest Chinese Manufacturing PMI fell short of expectations. As this indicates that the world’s second largest economy remains in a state of slowdown, and that negative global headwinds are unlikely to abate in the coming months, there is a risk that Fed policymakers could be pushed towards a more dovish stance. Consequently the US Dollar has slumped across the board this morning, with traders losing some confidence in the asset.
EUR/USD Exchange Rate Forecast: US Dollar may Strengthen with Improved ISM Manufacturing Index
A ‘Greenback’ rally could be in store, however, with the afternoon’s ISM Manufacturing Index predicted to show that domestic output expanded slightly on the month in November. As last month’s figure of 50.1 clocked in perilously close to contraction territory, a stronger showing here could well shore up the appeal of the ‘Buck’.
Although Wednesday may see an uptick in Eurozone CPI, the inflationary gauge is unlikely to provoke particular volatility for the single currency as investors remain more focused on the outcome of Thursday’s ECB policy meeting.
Current EUR, USD Exchange Rates
At time of writing, the Euro to US Dollar (EUR/USD) exchange rate was trending higher in the range of 1.0596, while the US Dollar to Euro (USD/EUR) pairing slumped in the region of 0.9434.