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Euro US Dollar (EUR/USD) Exchange Rate falls as Draghi Downgrades ECB Growth Forecast

EUR/USD Exchange Rate Dips as US Jobless Claims Fall to 49-Year Low

The European Central Bank (ECB) left its benchmark interest rates unchanged at 0% today, with ECB President Mario Draghi downgrading the bank’s outlook on growth risk, stating:

‘The risks surrounding the Euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.’

Likely dragging the Euro lower, Draghi reaffirmed the ECB’s stance to keep interest rates at their current levels through the summer of 2019 and ‘longer, if necessary.’

Meanwhile, the number of people in the US seeking jobless benefits slid to its lowest levels since November 1969, demonstrating that despite the US partial government shutdown – which is now in its fifth week – the US job market remains strong.

Despite the better-than-expected US jobless figures, the Euro US Dollar (EUR/USD) exchange rate began to climb this afternoon before falling back, and is currently trading down around 0.2% at an inter-bank rate of $1.1371.

US Dollar Rises as Better-than-expected PMIs Delight USD Investors

The release of the US Markit manufacturing and services PMIs for January showed better-than-forecast increases, revealing that both sectors grew faster than expected.

Chris Williamson, Chief Business Economist at IHS Markit said:

‘US Businesses reported a solid start to 2019, with the rate of expansion running only slightly weaker than the average seen in the second half of last year.

‘The resilience of the survey data suggest little impact from the government shutdown on the private sector.

[…]“Encouragingly, business sentiment about the year ahead lifted higher, suggesting companies have started the year with increased optimism, boding well for robust business growth to be sustained in coming months.’

Euro (EUR) Slides as Eurozone Edges Closer to Stagnation as ‘Yellow Vests’ Take the Blame

This morning’s release of the Eurozone’s Markit composite PMI revealed that growth in the bloc’s private sector had stalled to a five and a half year low in January, with the economy edging closer to stagnation, which saw the EUR/USD pairing slide.

Chris Williamson, Chief Business Economist at IHS Markit stated:

‘The Eurozone economy slipped close to a stall speed in January, with companies reporting the first drop in demand for over four years. The disappointing survey data indicate that GDP is rising at a quarterly rate of just 0.1%.

‘[…] The ‘yellow vest’ protests led to the steepest downturn in the French economy since November 2014 […] German businesses are also reporting their toughest spell for four years, led by the manufacturing sector slipping into decline for the first time since 2014, in turn reflecting the largest drop in exports for six years.’

US Dollar (USD) Makes Gains despite Further Potential US-Sino Tension

Yesterday saw news emerge that US officials had confirmed that they planned to pursue the extradition of Meng Wanzhou, Huawei’s Chief Financial Officer, despite previous warnings from China that this would result in them taking action.

With the hearing expected to begin in February, it could potentially take months or even years, which could result in continued US-Sino tensions.

Canada’s ambassador to China, John McCallum suggested that the US could make a deal with China in which they could no longer seek her extradition – something President Trump said he would consider in December.

Deemed ‘political meddling’, McCallum stated:

‘I think she [Meng] has quite good arguments on her side. One, political involvement by comments from Donald Trump in her case. Two, there’s an extraterritorial aspect to her case. And three, there’s the issue of Iran sanctions in her case and Canada does not sign on to these. So I think she has some strong arguments she can make before a judge.’

EUR/USD Outlook: Could a Weak German Business Expectations Drag on the Single Currency?

Tomorrow will see the release of January’s IFO Current Assessment for Germany, which is forecast to slip from 104.7 to 104.2, as it suggests businesses expectations are going to fall: this could see the Euro struggle against the ‘Greenback’.

The IFO Expectations and Business Climate for Germany are also going to be released tomorrow, with these figures both expected to decrease compared to the previous reading, which could also see the Euro slip further.

It seems likely that the Euro US Dollar (EUR/USD) exchange rate could see fluctuations if there is any further reports of the USA beginning the extradition process of Ms Meng, which could increase US-Sino tensions and cause investor flight to the safe-haven US Dollar.