Eurozone Retail PMI Disappoints, EUR/USD Exchange Rate Softens

January 5, 2017 - Written by Ben Hughes

STORY LINK Eurozone Retail PMI Disappoints, EUR/USD Exchange Rate Softens

The Euro to US Dollar exchange rate fell from its best levels on Friday afternoon as the latest US Non-Farm Payroll results left traders optimistic about the US economy in 2017.

While the job market didn’t increase as much as expected in December 2016, the increase in jobs was close enough to forecasts to not be concerning and some analysts were cheered by slight improvements in wage growth.

(Previously updated 05/01/2016)

The EUR USD exchange rate slid from its best levels today as Markit announced the Eurozone’s latest Retail PMI results.

Mixed Eurozone Data Leaves Euro US Dollar Exchange Rate Lower

The Euro US Dollar (EUR USD) exchange rate has depreciated today as growth in the Eurozone retail sector was slightly below expectations.

The Eurozone’s retail PMI grew from 48.6 to 50.4 in December, falling slightly short of expectations that it would rise to 50.5, despite Germany’s retail sector rebounding from a disappointing report in January.
The disappointing result was largely attributed to another month of lacklustre sales in Italy as Europe’s third largest economy struggles under the continued pressure of political and economic uncertainty. As Phil Smith, economist at IHS Markit explained;

‘Germany was the best performer on the retail front throughout 2016, and December was no exception. France’s performance over the year was mixed, but a last-minute uptick in sales contributed to ongoing job creation and a slight improvement in firms’ margins. Italian retailers were unable to join the party, however, seeing sales fall again in December.’

The report also noted that out of the ‘big-three’ of the Eurozone only Germany saw sales rise on a year-on-year basis.

Drop in Private Sector Hiring Weighs on US Dollar

The US Dollar was weakened this afternoon by the latest ADP Employment report as the private sector hired fewer new workers than expected at the end of 2016.

Data shows that new hires dropped to 153k in December, notability short of expectations of 170k and a huge decline from 215k in November, with a lack of new hires in smaller companies being seen as a contributing factor. As Mark Zandi, Moody’s Analytics' chief economist said;

‘The gap between employment growth in the service economy and losses on the goods side persists. Smaller companies are struggling to maintain payrolls while large companies are expanding at a healthy pace.’

The result may also put further pressure on tomorrow’s non-farm payroll report which will be released with the US latest Unemployment Report which is expects to show a rise from a decade low of 4.6% to 4.7% in December.

EUR USD Exchange Rate Forecast: German Retail Sales Ahead

The EUR USD exchange rate may rally tomorrow following the release of the latest German Retail data, which is expected to show that sales rebounded from a dip in November, jumping from -1.0% to 1.2% in December.

However the ongoing situation in Italy is predicted to have affected the over-all Eurozone Retail figures with sales forecast to have dropped from 2.4% to 1.9%, dragging on the single currency.

Meanwhile the aforementioned rise in US Unemployment is likely to cause the US Dollar to dip during trading tomorrow, which could impact the Federal Reserve forecast for three rate hikes this year as growth in employment is seen as a key indicator for potential rate rises.

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