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Looming Global Recession Sends the Euro US Dollar (EUR/USD) Exchange Rate Lower

Euro US Dollar (EUR/USD) Exchange Rate Falls as Global Recession Fears Increase

The Euro US Dollar (EUR/USD) exchange rate edged -0.5% lower this morning, leaving the pairing trading at around $1.0975.

The US Dollar continued to make gains this week as global sentiment remained fragile and the coronavirus pandemic worsened.

The number of cases in the US continued to rise, although the World Health Organization (WHO) said the situation in Europe is likely to stabilise soon.

Analysts have warned that the increased chance of a global recession due to the pandemic will remain one of the biggest movers of currencies. This could see traders eventually favour currencies least affected by the global downturn.

Added to this, Japanese investors and companies hurried to cover a Dollar shortage before the end of the fiscal year.

China’s PMI also rebounded in February from a record low 35.7 to 52, although this did little to boost risk appetite as traders continued to flock to the safety of USD.

Commenting on this, Yukio Ishizuki, FX strategist at Daiwa Securities in Tokyo said:

‘The talk is Japanese names are short of Dollars, which is likely to keep the dollar bid well into London time.

‘We have to look beyond that and focus on what’s going on in China’s economy. Even if there is some decent data from China, I cannot be optimistic, because economic activity in many countries is grinding to a halt.’

Euro (EUR) Slips as German Labour Market Starts to Lose Traction

Data this morning showed that China’s manufacturing PMI unexpected rallied, rebounding from 35.7 to 52 in March.

However, this did little to spark an upswing in optimism among traders as the Chinese economy is still expected to contract in Q1 2020.

Meanwhile, this morning’s German jobless figure showed unemployment rise by 1,000 in March.

Unemployment dropped to 2.335 million, the second lowest March reading since the reunification of Germany. Although this was the weakest March improvement since 2009, suggesting the market had already started to lose traction before the coronavirus lockdown.

Added to this, the data only covers the start of the month, so does not reveal the impact the coronavirus pandemic and shut down has had on the job market.

Commenting on this morning’s data, ING’s Chief Economist, Eurozone and Global Head of Macro, Carsten Brzeski wrote:

‘Today’s labour market data look to be the last calm before the storm. Normally, the cut-off date for the labour market statistics is the middle of the month, which in March was just before the lockdown measures had been announced. According to regional reports, applications for short-time work schemes have multiplied since then.

‘During the financial crisis, short-time work schemes were one of German government’s most important tools to stabilize the economy. And it worked. Private consumption remained almost stable in 2008 and 2009 and has become an important growth driver of the German economy since then. It simply is too early to tell whether short-time work schemes will have the same magical effect. The German government definitely hopes that it will.’

Euro US Dollar Outlook: German Manufacturing PMI Data in Focus

Looking ahead to this afternoon, the US Dollar (USD) could suffer some losses following the release of March’s consumer confidence data.

If confidence plummets further than expected, the ‘Greenback’ could suffer some losses.

Meanwhile, on Wednesday, Germany’s final reading of the Markit manufacturing PMI is due for release which could offset weak US data.

If Germany’s manufacturing sector plummets further into contraction this month, the Euro US Dollar (EUR/USD) will slump further.