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Euro US Dollar (EUR/USD) Exchange Rate Rises as US ‘Already in a Recession’

Euro US Dollar (EUR/USD) Exchange Rate Edges Higher as US PMI Hits Record-Low

UPDATE: The Euro US Dollar (EUR/USD) exchange rate edged up by around 0.4% this afternoon. This left the pairing trading at around $1.0810.

The US Dollar continued to slide against the Euro, with flash data showing economic output plummeted at the fastest rate in over a decade as Covid-19 hit.

Markit’s PMI composite slumped to a fresh series low of 40.5, while the separate flash services PMI fell to 39.1.

Commenting on the data release, Markit’s Chief Business Economist, Chris Williamson noted:

‘US companies reported the steepest downturn since 2009 in March as measures to limit the COVID-19 outbreak hit businesses across the country. The service sector has been especially badly affected, with consumer-facing industries such as restaurants, bars and hotels bearing the brunt of the social distancing measures, while travel and tourism has been decimated. However, manufacturing is also reporting a slump in demand, with production falling at a rate not seen since 2009, linked to either weak client demand, lost exports or supply shortages.

‘The survey underscores how the US is likely already in a recession that will inevitably deepen further. The March PMI is roughly indicative of GDP falling at an annualised rate approaching 5%, but the increasing number of virus-fighting lockdowns and closures mean the second quarter will likely see a far steeper rate of decline.’

Euro US Dollar (EUR/USD) Exchange Rate Edges Higher as Fed Eases Funding Conditions

The Euro US Dollar (EUR/USD) exchange rate traded around 0.7% higher this morning after the Fed’s announcement. This left the pairing trading at around $1.0835.

The US Dollar slipped on Tuesday after the US Federal Reserve pulled out all the stops to offer as much liquidity as possible.

The Fed eased its tight funding conditions slightly, boosting risk appetite and sending the ‘Greenback’ lower. The Dollar index was down close to 1% this morning as demand for the currency eased.

On Monday, the country’s central bank announced it would support markets by unleashing unlimited quantitative easing and programmes.

Commenting on this, Koichi Kobayashi, chief manager of forex at Mitsubishi Trust Bank noted:

‘We seem to have got out of a phase where everything from stocks to safe assets such as bonds and gold were sold.

‘The Dollar funding conditions are easing slightly, compared with a week ago, though I wouldn’t say things are normal. While the Fed is pumping dollars, we still need to wait and see if those money will flows to every corner of the economy.’

The recent weakness in the Dollar allowed the single currency to rebound after hitting a three-year low of $1.0636.

Euro (EUR) Rises despite Germany ‘Headed for Recession’

The Euro was able to benefit as investors moved away from the US Dollar. This was despite data revealing the coronavirus outbreak has hit Germany’s domestic economy.

Markit’s flash PMI composite plummeted to a 133-month low of 37.2, down from February’s reading of 50.7.

This was the lowest since 2009 and the sharp drop in activity is linked to the ongoing coronavirus pandemic.

Added to this, the country’s services PMI slumped to 34.5, the worst reading since the survey started in June 1997.

This morning’s data added to further signs the bloc’s largest economy was headed for recession. This came after Monday’s warning from Germany’s Bundesbank.

Commenting on this morning’s PMI release, Phil Smith, Principal Economist at IHS Markit said:

‘The unprecedented collapse in the PMI underscores how Germany is headed for recession, and a steep one at that. The March data are indicative of GDP falling at a quarterly rate of around 2%, and the escalation of measures to contain the virus outbreak mean we should be braced for the downturn to further intensify in the second quarter.

‘The service sector has so far borne the brunt of the government’s measures to stem the spread of COVID-19, with activity falling to the greatest extent in almost 23 years of data collection, and at a rate that already far surpasses anything seen even during the depths of the global financial crisis.’

Euro US Dollar Outlook: Coronavirus Pandemic in Focus

The US Dollar (USD) could suffer further losses against the Euro (EUR) following the release of flash PMI data.

If both the manufacturing and services sectors in the world’s largest economy plummet deeper into contraction, USD will slump.

Meanwhile, Wednesday’s weak German data could cause the single currency to give up some of today’s gains.

If Ifo show its final business climate reading for March has fallen further than expected as coronavirus weighs on confidence, the Euro will suffer losses.

However, markets will remain focused on the coronavirus pandemic. Any further easing measures from the US Federal Reserve could cause the Euro US Dollar (EUR/USD) exchange rate to edge higher.