Euro US Dollar (EUR/USD) Exchange Rate Rises as Trump Accuses ECB of Currency Manipulation
UPDATE: The Euro US Dollar (EUR/USD) exchange rate rose 0.5% and the pairing is currently trading around $1.1066.
The single currency rose despite the European Central Bank’s (ECB) decision to cut its deposit rate to a record low of -0.5% and restart quantitative easing.
Commenting on this, ING’s Carsten Brzeski wrote:
‘The final showdown has started with a big bang. The ECB just announced a big policy package to revive the Eurozone economy and to bring inflation back to target.
‘This is Mario Draghi’s final ‘whatever it takes’. Despite all market excitement now, the question remains whether this will be enough to get growth and inflation back on track as the real elephant in the room is fiscal policy. It is clear that without fiscal stimulus, Draghi’s final stunt will not necessarily lead to a happy end.’
However, immediately following the decision, the Euro plunged and the US President accused the central bank of fighting a currency war by ‘depreciating the Euro’.
Euro US Dollar (EUR/USD) Exchange Rate Muted as Eurozone Industrial Production Disappoints
The Euro US Dollar (EUR/USD) exchange rate remained muted ahead of the Eurozone’s interest rate decision and is trading around $1.1022.
The single currency was left under pressure as Eurozone industrial production output slumped further than expected in July.
Output contracted by a worse-than-forecast -0.4% while annually production slumped by -2% in July.
The weak data comes ahead of the European Central Bank’s (ECB) interest rate decision.
Investors are largely expecting policymakers to cut rates to support weak growth in the bloc.
Added to this, the decision is likely to set the tone for next week’s Federal Reserve meeting, which could see the bank cut rates for the second time in 2019.
Euro (EUR) Flat as IFO Warns German is Falling into a Recession
German inflation weighed on the Euro as August’s annual increase of 1.4% fell further below the ECB’s target.
This was not the only disappointing news for the bloc’s largest economy as IFO warned the country was falling into a recession.
The thinktank predicts German GDP will contract for the second quarter in a row between July and September.
It is also worried by German staff cuts as this is a classic sign of a recession, and its new economic forecast noted:
‘While employment in the manufacturing sector has been falling since the spring, so far the strong growth in private service providers and in the construction industry has come to a standstill in the summer.
‘Unemployment is already rising for the fourth month in a row and the proportion of companies have announced the short-time working, has increased significantly.’
Added to this, IFO’s Timo Wollmershaeuser noted that the disappointing fall in German industry, mainly in the car sector could spread across the economy.
Safe-Haven US Dollar (USD) Left Flat Following Trump’s Tariff Delay
Investors moved away from safe-haven assets as tensions between the US and China appeared to thaw.
In a goodwill gesture, China announced a basket of US goods would be exempt from further tariff hikes.
In response, US President Donald Trump announced he would delay a planned October tariff hike.
The delay of two weeks sparked an upswing in risk-appetite.
However, while the gestures are likely to ease tensions ahead of the next round of face-to-face talks, markets did not see this as a sign a trade agreement is in sight.
In a note, Greater China economist at ING, Iris Pang stated:
‘The exemption could be seen as a gesture of sincerity towards the US ahead of negotiations in October but is probably more a means of supporting the economy.
‘There are still many uncertainties in the coming trade talks. An exemption list of just 16 items will not change China’s stance.’
Euro US Dollar Outlook: Will EUR Slide on a Dovish ECB?
Looking ahead to this afternoon, the Euro (EUR) could slide against the Dollar (USD) following the ECB’s rate decision.
If the ECB slash rates and are overly dovish about the outlook for the Eurozone, the single currency could plummet.
Meanwhile, the Dollar could edge up against the Euro following the release of August’s consumer inflation.
If inflation rises higher than forecast, the Euro US Dollar (EUR/USD) exchange rate is likely to slide further.