Euro US Dollar (EUR/USD) Exchange Rate Flat as Markets Price in ECB and Fed Rate Cuts
The Euro US Dollar (EUR/USD) exchange rate remained muted and the pairing is currently trading at around $1.1036.
The single currency remained under pressure ahead of Thursday’s European Central Bank (ECB) rate decision.
While policymakers are expected to deliver fresh stimulus, expectations for a rate cut have increased as other central banks continue to loosen monetary policy.
The People’s Bank of China cut the amount of cash banks are required to hold as reserves on Friday.
Meanwhile, the Dollar was left flat as markets weighed the prospects of a rate cut from the US Federal Reserve next week.
Head of Foreign Exchange Strategy at National Australia Bank, Ray Attrill noted:
‘The Chinese numbers play to the view that if we don’t see progress in US-China trade talks, then further easing will be necessary, including tolerance of a weaker Yuan.
‘The ECB is the game in town globally this week, and the market is more comfortable with the Federal Reserve cutting rates, so I think the market is probably risk neutral.’
Euro (EUR) Muted as German Trade Balance Widens in July
Providing some amount of relief to the German economy, Monday’s trade balance widened to €20.2 billion in July.
Monthly exports rose by 0.7%, rebounding from June’s contraction of -0.1%.
However, this morning’s data could do little to buoy the single currency as it also revealed how vulnerable the German economy is to possible US tariffs.
While the US-China trade tensions are not directly impacting the German economy, any US tariffs could see the economy suffer as the US is the largest export market for Germany.
US Dollar (USD) Left Flat as Trade War Drags on US Manufacturing
The US Dollar remained under pressure following Friday’s mixed jobs report.
The unemployment rate remained steady and average hourly earnings increased, however non-farm payrolls edged up by a lower-than-expected 130,000.
It suggests the US economy is decelerating as the US-China trade war drags on the US manufacturing sector.
US employers added 3,000 factory jobs in August, down from an increase of 4,000 jobs added in July.
For the seventh consecutive month retail jobs declined suggesting retailers could be in more in more trouble than originally expected.
Commenting on this, J.J. Kinahan, Chief Market Strategist at TD Ameritrade stated:
‘I know we just passed Labour Day but they just continue to shed jobs like nobody’s business.’
Euro US Dollar Outlook: EUR to Slump on ECB Rate Cut?
Looking ahead, the Euro (EUR) could slump against the US Dollar (USD) following the release of Italy’s industrial production data.
If July’s industrial production contracts further than expected, single currency sentiment could plummet.
Meanwhile, signs the European Central Bank (ECB) is likely to cut rates could leave EUR under pressure.
If the bank slashes rates, the Euro US Dollar (EUR/USD) exchange rate is likely to fall.