Euro Fails to Strengthen in Spite of ECB Positivity

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  • Australian Dollar Benefits as Risk Aversion Eases – Underwhelming US data could encourage further gains
  • Signs of ECB Optimism Fail to Encourage Euro Rally – Central bank remains on track to wind down quantitative easing programme
  • Rising Odds of No-Deal Brexit Drag Down Pound – GBP exchange rates under pressure thanks to political jitters
  • New Zealand Dollar Gains Ground in Spite of Widened Trade Deficit – Rising exports cushion impact of disappointing trade balance

Stock Market Uptick Encourages Australian Dollar

As stock markets began to recover some of their recent losses overnight this offered support to the Australian Dollar. Market risk appetite picked up somewhat in the wake of mixed US data, with the world’s largest economy showing signs of feeling the pressure from Chinese tariffs. This gave AUD exchange rates an opportunity to push higher, even without the support of any fresh domestic data.

If tonight’s US gross domestic product data falls short of forecast this could offer the Australian Dollar another rallying point.

No-Deal Brexit Fears Weigh Heavily on Pound

The increasing risk of a no-deal Brexit kept the Pound on the back foot yesterday as the government set a date for Whitehall to accelerate its contingency planning. With no progress being made towards the resolution of the Irish border issue investors saw no reason to buy into Sterling at this stage. Domestic politics and Brexit continue to cast significant doubt over the outlook of the UK economy, limiting the upside potential of GBP exchange rates.

Without any signs of a breakthrough the Pound looks set to remain under pressure for some time to come.

ECB Optimism Not Enough to Shore up Euro

Although European Central Bank (ECB) President Mario Draghi maintained a relatively positive outlook on the Eurozone economy and the course of monetary policy the Euro struggled to capitalise on this. EUR exchange rates lacked traction against higher-yielding rivals overnight thanks to the general improvement in market risk appetite and continuing worries over the Italian budget. While the ECB still looks set to wind down its quantitative easing programme at the end of the year concerns over Italy continue to dominate the mood towards the Euro.

However, if the latest ECB survey of professional forecasters also paints an encouraging picture of the economic outlook this could help EUR exchange rates strengthen.

US Dollar Shrugs Off Mixed Data

Last night’s raft of US data proved rather mixed in nature, with a surprise widening of the advance goods trade deficit balanced against an unexpected uptick in durable goods orders. All in all, the data suggests that the US economy is starting to feel the impact of the trade spat with China as tariffs bite. Even so, the US Dollar held onto a solid footing against many of the majors thanks to the positive nature of the latest jobless claims figure, which point towards a continued tightening of the labour market.

A slowdown in the third quarter annualised gross domestic product may give USD exchange rates greater cause for weakness, though.

CAD Exchange Rates Unable to Hold Onto BOC Boost

After making solid gains in the wake of the Bank of Canada’s (BOC) interest rate hike the Canadian Dollar returned to a weaker footing yesterday. As Brent crude continues to trend below US$80 per barrel the appeal of the commodity-correlated CAD is likely to remain muted. Doubts remain over the underlying health of the Canadian economy, meanwhile, limiting the Canadian Dollar’s ability to push higher.

If the latest Canadian budget balance shows a return to a state of deficit this could drive CAD exchange rates lower heading into the weekend.

Wider NZ Trade Deficit Fails to Dent New Zealand Dollar

While September’s trade deficit failed to narrow as forecast this was not enough to prevent NZD exchange rates strengthening. Investors took encouragement from the solid uptick in export volumes on the month, even though imports also showed a sharp increase. With market risk aversion temporarily easing the appeal of the New Zealand Dollar generally picked up.

Any shift in market sentiment could leave NZD exchange rates exposed to renewed weakness, however.

Data Released

October 26th 19:00 EUR European Central Bank Survey of Professional Forecasters 
October 26th 23:30 USD Gross Domestic Product Annualised (QoQ) (3Q) 3.4%
October 27th 02:00 CAD Budget Balance (AUG) 

Post by TorFX

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