Improved German Manufacturing Fails to Shore up Euro US Dollar (EUR/USD) Exchange Rate
Strength in the German manufacturing PMI was not enough to keep the Euro to US Dollar (EUR/USD) exchange rate from slipping on Monday.
While October’s finalised manufacturing PMI showed solid growth on the month this failed to overshadow growing fears over the prospect of a double-dip recession.
Support for the US Dollar (USD) picked up, meanwhile, on the back of a better-than-expected ISM manufacturing index reading.
As the index surged from 55.4 to 59.3 in October this signalled an uptick in the sector’s growth momentum, encouraging hopes of greater resilience within the US economy.
Even in the face of growing jitters over the US presidential election result this positive showing encouraged the US Dollar to push higher against its rivals.
US Dollar Strength Set to Fade Ahead of US Presidential Election Result
However, USD exchange rates could struggle to hold onto any bullishness in the days ahead as markets await the outcome of the election.
The risk of a contested result and prolonged vote counting process may well limit the appeal of the US Dollar, with investors wary of the potential for renewed political unrest.
As long as an air of uncertainty hangs over the election outcome this could keep the US Dollar from gaining ground against its rivals.
Until the election is out of the way progress towards a fiscal stimulus package cannot be made, limiting confidence in the outlook of the US economy.
USD exchange rates may also face pressure as markets brace for the latest Federal Open Market Committee policy meeting.
Even if policymakers do not deliver any action at this stage the EUR/USD exchange rate could still benefit from increased signs of dovishness and caution among policymakers.
Weak Eurozone Services PMI Forecast to Limit Euro Support
October’s finalised set of Eurozone services PMIs look set to weigh on demand for the Euro (EUR), on the other hand.
Confirmation that the service sector experienced a significant loss of momentum at the start of the fourth quarter would give investors little reason to favour the single currency.
As long as the service sector continues to lag in contraction territory this raises the risk of a fresh economic downturn, especially in the face of renewed lockdowns across the currency union.
Unless the PMI sees a positive revision from its lacklustre initial reading the mood towards the Euro looks set to sour on Wednesday.
Fresh commentary from European Central Bank (ECB) policymakers could also drive weakness for the EUR/USD exchange rate.
Increasing signs of anxiety within the central bank would raise the odds of further policy loosening to come, leaving the Euro exposed to fresh selling pressure.