EUR USD Exchange Rates Neck and Neck as German IFO Surveys Prove Positive

October 25, 2017 - Written by Tim Boyer

STORY LINK EUR USD Exchange Rates Neck and Neck as German IFO Surveys Prove Positive

The Euro US Dollar exchange rate remained within a narrow band this morning with the Euro bolstered by the latest German IFO figures and the US Dollar gaining on the back of yesterday’s positive Markit PMI readings.

German IFO Readings Propel Euro Exchange Rates

German business confidence soared unexpectedly to a record high in October after falling for two consecutive months previously, according to the latest Ifo Business Climate Index.

The Ifo business climate reading hit the all-time high of 116.7, up from the previous period’s upwardly revised 115.3 and significantly above expectations of 115.2.

The current conditions index also increased from 123.7 to 124.8 in September, with the gauge for future expectations jumping from 107.5 to 109.1.

Overall, business sentiment increased amongst constructors, (18.5 to 19.9) and manufactures (28 – 30.9) but contracted for wholesalers (19.4 – 17.9).

Ifo Chief Clemens Fuest issued a statement on the results:

‘Companies are very optimistic about the months ahead. They also upwardly revised their very favourable assessments of the current business situation. Germany’s economy is powering ahead’.

The survey is a key measure of business sentiment, and with Germany being responsible for almost a quarter of the total Euro-Zone GDP, any indication of economic health within these surveys tends to bode well for the bloc as a whole.

Because of this, market demand for the single currency increased, keeping the Euro neck and neck with the currently rallying US Dollar.

USD Exchange Rates Bolstered by Markit PMI Readings

The US Dollar has remained predominantly upbeat in recent days, continuing to ride a wave of optimism resulting from US President Donald Trump’s tax reform proposal and indeed yesterday’s preliminary Markit PMI readings.

The October flash composite PMI beat forecasts of 54.3 by printing at 55.7, up from the previous period’s 54.8, whilst the manufacturing print came in at 54.5, up from the previous period’s 53.1 and the forecast of 53.4.

The services estimate also inched ahead by rising to 55.9 in October, up from 55.3 in September and signalling the second-fastest rate of expansion seen since November of 2015.

Beyond simply demonstrating that the US economy is growing, the news gives even more credence to the possibility of another rate hike from the Federal Reserve before the end of 2017 – a prospect that has driven the even more investor demand to the ‘Greenback’.

IHS commented on the positivity of the readings:

‘…there were also positive developments in terms of staff hiring and business optimism during October, suggesting that private sector firms are gearing up for sustained growth in coming months’.

EUR USD Forecast Positive with US Durable Goods Figures Imminent

The EUR USD exchange rate could shift into the Euro’s favour this afternoon depending on the result of today’s run of US data prints, with the US durable goods orders being perhaps the most notable.

New orders for manufactured durable goods in the US are currently forecast to fall month-on-month from 1.7% in August to 0.3% in September – a significant drop that could put the US Dollar under pressure.

In addition, data regarding new US home sales is also due, with a forecast rise from 550k to 560k in September.

Whilst that is it for Euro data releases today, tomorrow will feature the European Central Bank’s (ECB) October rate decision – an event that markets will be watching very closely.

The ECB is not currently expected to raise interest rates at this meeting, but they are expected to shed more light on the tapering of the bank’s quantitative easing scheme. Nonetheless, markets will be carefully listening for soundbites that would indicate future hawkish, or dovish sentiment, with any hawkish regard liable to send EUR USD soaring and a more cautious approach liable to leave the Euro floundering.

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