Euro Loses Ground on Weaker Eurozone Inflation and Italian Growth Contraction

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  • Australian Dollar Under Pressure as Chinese Manufacturing Stalls – Solid domestic data to offer AUD support
  • Easing Eurozone Inflation Weighs on Euro Demand – Surprise Italian growth contraction dents sentiment
  • Canadian Dollar Struggles as GDP Slows – Confidence in Canadian economy diminishes further
  • Stronger House Price Growth Limits Pound Downside – GBP exchange rates look for boost on UK manufacturing PMI

Trade Tensions Keep Australian Dollar on Back Foot

As tension mounted ahead of the G20 summit the Australian Dollar came under pressure, with investors wary of the prospect of trade tensions between the US and China flaring up further. In the absence of any particular sense of market risk appetite AUD exchange rates were left on a weaker footing. A surprise stagnation in the latest Chinese manufacturing PMI also weighed on demand for the antipodean currency, even after steady Australian private sector credit data.

Any slowdown in November’s manufacturing PMI is likely to see AUD exchange rates shed further ground this morning.

Improved House Price Growth Offers Limited Pound Support

November’s Nationwide house price index data offered encouragement to the Pound, with price growth picking up from the thirteen-month low seen in October. However, the positive impact on GBP exchange rates was ultimately limited thanks to persistent signs of caution among buyers. With Brexit uncertainty looking set to keep the housing market under pressure in the months ahead the Pound struggled to find significant traction ahead of the weekend.

Today’s UK manufacturing PMI could offer GBP exchange rates a solid rallying point, however, if the sector picks up on the month.

Euro Under Pressure as Eurozone Inflation Eases

The appeal of the single currency remained limited on Friday as the Eurozone consumer price index eased on the year, falling back to 2.0%. With the headline inflation rate now back in line with the European Central Bank’s (ECB) target rate the case for any interest rate hike appears to have diminished. Investors were also spooked by news that the Italian economy had contracted in the third quarter, defying expectations of a stagnation in growth and raising fresh concerns over the 2019 budget proposal.

November’s finalised Eurozone manufacturing PMIs are unlikely to provoke any particular volatility for the single currency.

Surge in Chicago PMI Benefits US Dollar Exchange Rates

A surprise surge in the latest Chicago purchasing manager index gave the US Dollar a boost ahead of the weekend. As the index leapt from 58.4 to 66.4 in November this suggests that the US manufacturing sector remains in a robust state of health. The stronger showing encouraged USD exchange rates to trend higher, even though doubts remain over the likelihood of the Federal Reserve continuing to raise interest rates in 2019.

If the ISM manufacturing index shows a similar improvement on the month the US Dollar is likely to maintain a bullish trend overnight.

Softening Growth Weighs Down Canadian Dollar

In another blow to the Canadian Dollar the gross domestic product proved weaker than forecast in September. As the headline growth index dipped from 2.4% to 2.1% this put fresh pressure on CAD exchange rates, especially as growth saw an unexpected contraction on the month. All in all this points towards a weaker Canadian economy, giving the Bank of Canada (BOC) incentive to leave monetary policy on hold for longer.

Unless the manufacturing sector shows signs of resilience in November the mood towards the Canadian Dollar is unlikely to improve today.

Improved Consumer Confidence Fails to Boost NZD

Even though the ANZ consumer confidence index showed a strong rebound on the month this failed to shore up NZD exchange rates on Friday. Signs of greater confidence within the domestic economy were overshadowed by a wider sense of market risk aversion and weaker Chinese data. With markets wary of an escalation of the US-China trade spat investors saw little reason to buy into the New Zealand Dollar.

The third quarter New Zealand terms of trade index may offer NZD exchange rates a boost, though, if signs point towards an improved trade outlook.

Data Released

December 3rd 08:30 AUD Manufacturing PMI (NOV) 56.6
December 3rd 08:45 NZD Terms of Trade Index (QoQ) (3Q) 1%
December 3rd 20:30 GBP Manufacturing PMI (NOV) 52
December 4th 01:30 CAD Manufacturing PMI (NOV) 
December 4th 02:00 USD ISM Manufacturing Index (NOV) 58

Post by TorFX

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