Euro Exchange Rates Lack Momentum Despite Record Low German Unemployment

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Headlines

  • Stronger Services PMI Could Boost AUD Exchange Rates Further – Solid sector growth could limit Australian Dollar vulnerability
  • Sterling Faltered as UK Construction Outlook Hit Five-Year Low – Bullish services PMI may offer GBP rallying point
  • German Unemployment Rate Dipped to Record Low – Euro still muted by doubts over ECB outlook
  • Weaker Producer Prices Forecast to Dent CAD – Canadian Dollar struggles to capitalise on bullish oil prices

Australian Dollar

While copper prices retreated from their highs overnight the Australian Dollar remained on bullish form. Investors continued to favour the ‘Aussie’ as the general sense of market risk appetite persisted, thanks to the positive nature of recent Chinese data and a weaker US Dollar. Even so, this uptrend remained somewhat fragile in the absence of any supportive Australian data.

An uptick in the Australian services PMI could offer an additional boost to AUD exchange rates this morning, though, if the sector continues to demonstrate solid growth.

Sterling

December’s UK construction PMI proved disappointing, showing an unexpected dip from 53.1 to 52.2 on the month. The report also highlighted the continued decline in sentiment amongst construction firms, with the outlook component falling to its lowest level since mid-2013. This undermined hopes that the domestic economy will start to flourish in the months ahead, prompting the Pound to return to a downtrend.

However, if the corresponding services PMI shows increased growth Sterling could find a strong rallying point.

Euro

Demand for the single currency failed to pick up even after the German unemployment rate was found to have fallen to a record low of 5.5%. While the labour market in the Eurozone’s powerhouse economy continued to tighten this was not enough to shore up the appeal of the Euro. As markets maintain the view that the European Central Bank (ECB) will hold onto its dovish policy bias for some time yet the upside potential of EUR exchange rates still looks decidedly limited.

Reaction to the finalised raft of Eurozone services PMIs is unlikely to be particularly marked, with forecasts pointing towards no change from the initial readings.

US Dollar

In spite of its recent run of bearishness the US Dollar was able to find some support on the back of a stronger ISM manufacturing index. This confirmed that the domestic manufacturing sector has continued to pick up momentum heading into 2018, encouraging investors to buy back into USD exchange rates. Even so, with investors still somewhat sceptical over the longer-term impact of the Trump administration’s tax reforms the US Dollar struggled to gain significant traction.

If tonight’s ADP employment change figure proves positive this could encourage further USD gains, setting the stage for a stronger non-farm payrolls report.

Canadian Dollar

Oil prices remained strong as tensions within Iran continued to flare up, with their potential to further disrupt local production. This kept the Canadian Dollar on a more positive footing, although some of its gains were reversed as the US Dollar began to recover a degree of strength. With signs also pointing towards increased US production the bullishness of the oil market remained rather vulnerable to a sudden shift in direction.

As the latest producer price index figures are forecast to show an easing in inflationary pressure, though, the Canadian Dollar could see further weakness tonight.

New Zealand Dollar

Political jitters continued to pressure the New Zealand Dollar on Wednesday, with investors finding no incentive to favour the antipodean currency over its rivals. With the US Dollar recovering some of its recent losses NZD exchange rates faltered, lacking any particular support in the absence of any domestic data.

Confidence in the ‘Kiwi’ is likely to remain weak today, especially if market risk appetite deteriorates.

Data Released

January 4th 08:00 AUD Services PMI (DEC) 52
January 4th 19:00 EUR Eurozone Manufacturing PMI (DEC F) 56.5
January 4th 19:30 GBP Services PMI (DEC) 54
January 4th 23:15 USD ADP Employment Change (DEC) 190,000
January 4th 23:30 CAD Producer Price Index (MoM) (NOV) 0.8%

Post by TorFX

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