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The Euro to USD Exchange Rate Pares Gains, Euro to CAD Steady

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The Euro was holding ground close to a five-week high against the US Dollar on Tuesday despite the release of weaker than expected manufacturing data. Against the Canadian Dollar the single currency was broadly lower due to a rise in oil prices.

Earlier in the session the Euro weakened against the majority of its most traded peers as data released by Markit showed that factory production in the 18-member currency bloc fell last month suggesting that the region’s recovery is stalling.

Revised data showed that manufacturing production in the Eurozone dropped to its lowest level in seven months as the PMI fell to 51.8 last month. The figure was a decline from the 52.2 figure recorded in May.

Germany disappointed investors as the region’s largest economy saw production decline to an eight month low of 52.0. France also disappointed and all but confirmed its position as one of the Eurozone’s faltering economies after its PMI tumbled to a six month low of 48.2. A figure below 50 indicates contraction whilst one above indicates expansion.

“The PMI survey will raise concerns that the euro zone recovery is losing momentum. The overall picture is a reminder of just how fragile the region’s recovery is looking. The slowdown will put pressure on policymakers at the ECB to do more to prevent the recovery from stalling, and we will no doubt see more calls for full-scale quantitative easing to be implemented,” said Chris Williamson, chief economist at data collator Markit.

The US Dollar meanwhile remains weighed upon by concerns over the outlook for the world’s largest economy and on expectations that the Federal Reserve will choose to leave interest rates on hold close to 0% for an extended period. Recent data has disappointed the markets but that could change if today’s US PMI data comes in positively.

Against the Canadian Dollar the Euro softened despite Canadian markets being shut for the Canada Day national holiday. The ‘Loonie’ found support from a rise in oil prices.

The commodity increased in value following the news that manufacturing in China improved last month. The conflict in Iraq is also putting pressure upon prices as the Middle Eastern country is OPEC’s second largest exporter.

Wednesday sees the release of the latest Eurozone GDP and producer price inflation. Both are likely to come in on the downside.

UPDATED 11:50 GMT, 02 July, 2014

The Euro to USD exchange rate edged lower on Wednesday as investors got over yesterday’s slightly disappointing US manufacturing reports and instead focused on the upcoming European Central Bank rate decision.

Given that today’s Eurozone Producer Price Index showed that prices fell by 0.1% in May (month-on-month) the ECB may decide to restate its commitment to keeping policy accommodative in order to fend off deflation.

Whilst it is incredibly unlikely that the central bank will outline any further policy measures given that it only introduced a raft of new schemes last month, the tone adopted by ECB President Mario Draghi will be instrumental in dictating what direction the Euro to USD exchange rate takes in the days ahead.

The Euro to CAD exchange rate was a little softer (trading around 1.4520) ahead of the release of Canadian manufacturing figures.