Euro Exchange Rate Brightens as Dollar Sinks on Trade Deficit
The Euro exchange rate looked a lot brighter on Wednesday, gaining 0.37 percent against a lackluster US Dollar.
The European trading session started badly for the single currency, posting small declines, primarily on the back of soft German Services PMI data. Although German Services PMI increased to 55.0, it missed market expectations for an increase to 55.2. The soft figures followed Eurozone PMI data which increased slightly to 55.4, matching analysts’ forecasts.
Although both numbers showed an increase, which put in the context of difficult economic times, should be respectable enough, the markets were not too impressed. For a start, the German data failed to match market forecasts for a second consecutive month. Germany is also the world’s fourth largest economy, and the Eurozone’s strongest economy by some considerable lengths. Should there be difficulties or a downturn in the engine room of the European project, it raises concerns over the viability of the European project in its entirety.
Overall in the European Union, the economic data releases were soft to lower. In a busy day on the economic calendar, we saw:
• Spanish Services PMI. Estimate 52.1. Actual 52.7
• Italian Services PMI. Estimate 53.2. Actual 52.6
• French Final Services PMI. Estimate 55.7. Actual 55.4
• German Final Services PMI. Estimate 55.2. Actual 55.0
• Eurozone Final Services PMI. Estimate 54.4. Actual 54.4
• Eurozone Retail Sales. Estimate -0.1%. Actual -0.2%
However, it wasn’t the soft European data which saw the Euro gain a near half percent against the US Dollar. Having spent most of the European trading session in the negative, the North American trading session saw the euro exchange rate enjoy a complete reversal. The reason? The US trade deficit.
The US economy, the world’s largest economy, saw its trade deficit climb to the most it has been for three years. The US trade deficit jumped to a five month high in July, as soybean and civilian aircraft exports declined whilst import levels reached a record high.
A key element to the rising trad deficit was the trade deficit with China, the world’s second largest economy leapt 10 percent to hit a record $36.8 billion. The ongoing trade war talk with China has been ramped up by President Donald Trump on a few occasions, with duties raised on aluminum and steel imports as well as a wide range of Chinese goods.
The trade war talk has helped keep the Euro exchange rate fairly buoyant in what has been testing times for the European Union and its single currency. An extended political crisis in Italy has keep the euro exchange rate subdued for the last three months. Meanwhile, the ongoing Brexit talks and conflict has provided consistent pressure on the Euro since the British Brexit referendum held over two years ago.
The outlook for the Euro certainly looks mixed, with a number of factors such as Brexit, US trade war and even German political uncertainty still yet to be decided but all having the ability to impact upon the Euro exchange rate.