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Disappointing German Construction PMI Causes Euro US Dollar (EUR/USD) Exchange Rate to Slide

August 6, 2019 - Written by John Cameron

Euro US Dollar (EUR/USD) Exchange Rate Slides as German Construction PMI Falls into Contraction

The Euro US Dollar (EUR/USD) exchange rate slumped and the pairing is currently trading at an inter-bank rate of $1.1196.

This morning data revealed that German construction activity slumped for the first time in nine-months.

The Euro slumped as the German construction PMI fell to 49.5 in July from a reading of 50 in June.

Markit’s data showed that the sector saw its sharpest downturn in new orders since September 2014.

Commenting on the data, Principle Economist at IHS Markit, Phil Smith said:

‘As is the case with manufacturing, there is an increasing drag on overall economic output from the construction sector in July. The survey’s indicators of total activity and new orders have maintained their recent slide, with the former now at its lowest since March 2018. However, it’s difficult to untangle how much of the slowdown still represents payback from the very strong start to the year, and how much is due to weaker underlying demand.’

Euro (EUR) Falls despite Rebound in German Factory Orders

Meanwhile, further data from the bloc’s largest economy showed that German factory orders rebounded in June.

Orders jumped by a higher-than-forecast 2.5% in June following a slump of -2% in May.

However, this could do little to buoy the single currency as the German Economy Ministry stated the sector has not yet reached a turning point.

The bloc’s largest economy has been battered by headwinds from trade tensions, a slowing global economy and Brexit uncertainty.

Commenting on this, Thomas Gitzel, Economist at VP Bank said:

‘The decent increase in June is good news, but is no cause for immediate celebration. In view of the trade conflicts, humility is required.’

US Dollar (USD) Rises as PBoC Warns Increased Tensions Will ‘Prevent’ Recovery

Meanwhile, US Dollar rose against the single currency as China responded to Washington’s decision to label Beijing as a currency manipulator.

This came after the Chinese Yuan slumped below the seven-per-dollar level for the first time in over a decade.

The US Treasury Department said it had determined that China was manipulating its currency for the first time since 1994.

On Tuesday, China’s central bank stated this labelling would ‘severely damage international financial order and cause chaos in financial markets’.

The People’s Bank of China (PBoC) also noted that the decision to ramp up tensions would ‘prevent a global economic and trade recovery’.

In a statement on the bank’s website, the PBoC wrote:

‘[China] has not used and will not use the exchange rate as a tool to deal with trade disputes.

‘China advised the United States to rein in its horse before the precipice, and be aware of its errors, and turn back from the wrong path.’

Euro US Dollar Outlook: Will EUR Slide on Disappointing German Industrial Production?

Looking ahead to Wednesday, the Euro (EUR) could slide against the US Dollar (USD) following the release of the German industrial production data.

If production slides further than expected in June, single currency sentiment could be left dampened.

Meanwhile, later in the afternoon the Dollar could fall following a speech from the Chicago Federal Reserve President, Charles Evans.

If Evans’ tone is overly dovish, it could weigh on the ‘Greenback’ and cause the Euro US Dollar (EUR/USD) exchange rate to rise.

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