Euro rebounds and US Dollar declines on mixed economic data

Enrique Díaz-Álvarez02/Dec/2015Currency Updates

Many businesses are finding the currency markets even more difficult to manoeuvre as a potential price jump gets closer, with both the European Central Bank and the Federal Reserve in the US making directional decisions this month.

Yesterday we say the Euro recover somewhat from its seven-and-a-half-month low against the US Dollar on Tuesday, given a boost ahead of this week’s ECB meeting by encouraging data that painted a slightly more upbeat picture of the Eurozone’s economy.

In particular, manufacturing in the Euro-area continued to post respectable levels of growth in November, especially in Germany, while unemployment unexpectedly fell again for the second straight month to a multi-year low.

Moreover, doubts began to surface that the Governing Council may not deliver enough to push the Euro lower on Thursday, given how much the already high expectations for action have been priced in by the market.

The Euro rally was fuelled further yesterday by manufacturing data in the US from ISM, which showed the manufacturing sector in the US contracted last month, with a strong US Dollar and weaknesses in the emerging market universe hampering demand. Similarly, manufacturing in the UK also suffered a slowdown, sending the Pound sharply lower against both of its major peers.

Attention in the markets today continues to remain firmly on the ECB on Thursday. In the meantime, inflation data in the Eurozone this morning is expected to show some inflationary pressures returned to the economy in November. This will be followed by a number of speakers from the Federal Reserve in the afternoon, notably including Chair Janet Yellen at 4:00pm London time.

For the coming months we forecast further Euro weakness, compounded by an appreciating US Dollar following the Fed’s interest rate decision on 16 December.

Major currencies in detail:


Sterling sank by 0.2% against the US Dollar and by 0.5% versus the Euro yesterday as a result of weak data.

The manufacturing sector in Britain suffered from a surprisingly abrupt slowdown in November. The PMI released by Markit slowed from a healthy 55.2 in October to just 52.7, well below the level forecast by economists.

While underwhelming, the measure still remains higher than the average for the year, and comes amid a moderate slowdown in the level of manufacturing job creation, which was the main driving force behind October’s strong performance.

External demand for UK goods continues to be hampered by a relatively strong Pound, which remains around multi-year highs in trade-weighted terms given the currency’s recent strong rally against the Euro.

The construction PMI is set for release this morning.


Yesterday proved to be a rare good day of economic data in the Euro-area, causing the single currency to rally by 0.35% against the US Dollar.

The labour market continued to show improvement according to Eurostat, with the official jobless rate declining by 0.1% in October to an almost four-year low of 10.7%. While the 13,000 decline in those out of work is no doubt a positive for the stuttering Eurozone economy, unemployment in excess of 10% still remains lofty, and well above many other developed nations.

Earlier in the day, Markit revealed that the Euro-area’s manufacturing sector expanded again. The overall PMI registered 52.8 for the second straight month following healthy expansion in Germany and Italy in particular.

The Eurozone consumer price index this morning will be the focal point of currency trading today. Regardless of the data, we still expect a sizable expansion in the ECB’s easing measures on Thursday.


The Dollar index declined by 0.2% yesterday after some very mixed economic data released across the Pond, with investors seemingly focusing on the negative print.

According to ISM, the manufacturing sector of the US economy suffered from its worst performance since 2009 in November. The monthly index declined from 50.1 to 48.6, with a figure below 50 representing a contraction. The lowest reading in six years comes amid sluggish external demand hampering US exports and a decade-high US Dollar in trade-weighted terms.

Earlier it was announced that construction spending accelerated by 1% in October.

Yellen’s speech could be a market mover this afternoon if she talks about monetary policy, although this is not expected.

Rest of the world

Brazil’s beleaguered economy was given a further blow yesterday after it was announced the country fell even further into recession in the third quarter. The economy contracted by a massive 4.5% on a year previous.


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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.