Euro continues to decline after weak IFO data is released

Claire Hogarth25/Sep/2014Currency Updates

GBP

The Pound weakened versus the Dollar during trading yesterday by around 0.3% but remains the best performer among the 10 major currencies tracked by Bloomberg’s Correlation Weighted Index. The Index showed that the Euro declined by 0.5% while the Dollar gained by just over 5% during the previous month. Further gains for the Pound may be limited as the currency is under pressure from increased speculation that the UK will follow suit with the US and other allies in launching airstrikes against the Jihadist IS in Iraq.

No data of major significance coming out of the UK today, however, BoE’s Governor Carney will be making a speech at 1:40pm in Newport, Wales, with the topic of interest rates potentially on the agenda. This will be a key focus for markets.

EUR

The single currency fell against most of its 31 major counterparts after more poor data came out of the Eurozone yesterday with the IFO business climate index 1 point below expectations, declining to 104.7 in September. This represents a drop from 106.3 in August and a substantial deterioration since this time last year when it scored 108. This figure is the lowest in 17 months, and it often leads the all-important PMI business sentiment index. This downward surprise caused the single currency to fall against Sterling by 0.7% and the Dollar by 0.5% when the data was released.

The EUR/USD exchange rate reached its lowest level since July 2013 during trading on Wednesday. Doubts over the strength of the Eurozone economy, coupled with data suggesting the US will raise interest rates, indicate that this trend may continue.

USD

The Dollar strengthened substantially during the course of Wednesday on both Sterling by 0.4% and the Euro by 0.5% with the US Dollar Index reaching its highest level since June 2010 after increasing by almost half a percent in a matter of hours.

The greenback was boosted by data showing the number of new home sales in the US experienced its highest month on month increase since March 2010, according to data released by the US Census Bureau. Home sales rose from 427,000 in July to 504,000 in August, considerably higher than analysts were predicting.

At 1:30pm London time the US Census Bureau will be releasing its Durable Goods Orders data for August. This announcement, which measures the level of orders received by manufacturers for durable goods such as motor vehicles and appliances, is a volatile figure month-to-month, though it often has a significant effect on the markets. Consensus is that, after last month’s unexpected record breaking increase of 22.6%, this month’s data will be far more bearish, with a decrease of as much as 18% for August predicted. A look at the more stable three-month average orders for capital goods component will show the state of US investment.

Rest of the world

Brazil’s Real traded at a seven month low falling by 0.2% on the Dollar and extending its decline this month to 7.4% amid concerns that the nation will struggle to recover from its recession after President Rousseff picked up support in voter polls. The Real’s decline means it is now the worst-performing of the 31 major currencies tracked by Bloomberg.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.