Euro US Dollar (EUR/USD) Exchange Rate Slumps as German Manufacturing Spends 13th Month in Contraction

February 3, 2020 - Written by John Cameron

STORY LINK Euro US Dollar (EUR/USD) Exchange Rate Slumps as German Manufacturing Spends 13th Month in Contraction

Euro US Dollar (EUR/USD) Exchange Rate Slumps as German Staff Cuts Continue

The Euro US Dollar (EUR/USD) exchange rate slumped at the start of the week, leaving the pairing trading at around $1.1064.

The single currency fell despite data showing that the German manufacturing PMI rose to an 11-month high in the first month of 2020.

The bloc’s largest economy saw its final PMI figure rise to 45.3.

However, the data also showed that the pace of staff cuts in the sector remained amongst the fastest since early 2010.

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

‘Germany's manufacturing sector showed more signs of being on the way to recovery in January, with the PMI climbing further from last September's nadir to its highest for 11 months [...] That said, output, stocks, and employment in particular remain firmly in contraction, to show that the sector is not out of the woods yet.

‘The recent improvement in manufacturers' expectations extended into January, with firms noting the influence of easing trade tensions and the prospect of a revival in exports. However, the picture has change somewhat in the short space of time since the survey was conducted [13-24 January], with the disruption to business in China from the coronavirus bound to have an impact on German manufacturers' exports and sentiment in the coming months.’

Coronavirus Fears Buoy the US Dollar (USD)

The US Dollar has reversed some of last week’s weakness as fears over the economic impact of the coronavirus have eased slightly.

However, the continued risk-off mood provided support for the Dollar.

The first death from the virus outside China shook markets while the death toll in China reached 361 and the number of confirmed cases jumped to over 17,000.

Meanwhile, tensions between the US and China heightened after Beijing accused Washington of causing ‘panic’ in response to the outbreak.

The US declared it a public health emergency and imposed strict travel restrictions, denying entry to all foreign visitors that have recently been to China.

In a news briefing earlier today, Chinese foreign ministry spokesperson Hua Chunying said the actions of the US ‘could only create and spread fear’ instead of offering assistance.

Euro US Dollar Outlook: Will Strong US Manufacturing Buoy USD?

Looking ahead to this afternoon, the US Dollar (USD) could rise further against the Euro (EUR) following the release of US manufacturing data.

If January’s ISM manufacturing PMI rises, and edges above the neutral 50 mark for the first time since July, USD will continue this morning’s rally.

Tuesday could see the pairing continue to rise if US factory orders rebound in December.

If factory orders increase following November’s fall of -0.7%, the Euro US Dollar (EUR/USD) exchange rate is likely to slump.

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