Euro Under Pressure as Eurozone Economy Loses Momentum

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Headlines

  • Easing Risk Aversion Benefitted Australian Dollar – Widened trade surplus to boost confidence further
  • UK Construction Sector Rebound Shored up Sterling – Stronger services PMI may extend rally
  • Euro Faltered on Weaker Eurozone GDP – Markets remain concerned by currency union’s loss of momentum
  • Surprise Dip in NZ Participation Rate Weighed Down NZD Exchange Rates – ‘Kiwi’ remains vulnerable to market jitters

Australian Dollar

As markets braced for the latest Federal Reserve policy announcement the Australian Dollar found some support. Even though markets remain confident that the US central bank will pursue a more aggressive pace of monetary tightening over the course of the year AUD exchange rates remained on a positive footing. With market risk aversion generally limited on Wednesday the ‘Aussie’ was able to push higher across the board.

If March’s trade surplus widens in line with forecasts the mood towards the Australian Dollar is likely to improve further this morning.

Sterling

Demand for the Pound picked up yesterday after April’s UK construction PMI bettered forecast to show a solid rebound on the month. As the index jumped from 47 to 52.5 this offered investors some cause for confidence in the outlook of the domestic economy, in spite of the rather marginal impact of the construction sector. However, the gains of GBP exchange rates were still limited as focus turned towards the more crucial services PMI.

Another strong performance from the UK service sector could help Sterling to return to a bullish trend ahead of the weekend.

Euro

The Eurozone’s first quarter gross domestic product data failed to impress investors, with growth confirmed to have slowed from 0.7% to 0.4% on the quarter. While this still represents a solid rate of growth the Euro came under renewed pressure as markets remain concerned that the Eurozone economy is losing momentum. As April’s raft of Eurozone manufacturing PMIs indicated that growth continued to ease at the start of the second quarter the mood towards the single currency naturally soured.

Any dip in the Eurozone consumer price index is likely to weigh heavily on EUR exchange rates today.

US Dollar

A sharp contraction in the MBA mortgage applications figure put some pressure on USD exchange rates overnight, with confidence in the health of the US housing market already faltering. This helped to limit the appeal of the US Dollar even as the latest ADP employment change figure bettered forecast. While markets remained generally confident in the prospect of more aggressive Federal Reserve policy tightening this was not enough to support USD exchange rates.

Tonight’s ISM non-manufacturing composite index could offer the US Dollar a boost, with forecasts pointing towards another solid reading.

Canadian Dollar

In a disappointing development the latest US crude oil inventories figure showed a much larger build-up on the week than anticipated, weighing heavily on the commodity-correlated Canadian Dollar. With US production continuing to pick up the outlook for the global oil market still looks rather volatile. While the OPEC-led production-limiting agreement is likely to remain in place for some time to come it appears that higher US output is likely to keep prices under pressure.

However, if market risk appetite picks up further today this could help to limit the downside bias of CAD exchange rates.

New Zealand Dollar

Although the headline first quarter unemployment rate held steady at 4.4% the New Zealand Dollar returned to a weaker footing yesterday. This was due to the surprise decline in the corresponding participation rate, which signals that the number of economically active New Zealanders has fallen. Confidence in the outlook of the domestic economy diminished further in the wake of the data, even as average hourly earnings picked up sharply.

An uptick in the ANZ commodity price index could offer some support to the ‘Kiwi’ this morning.

Data Released

May 3rd 11:00 NZD ANZ Commodity Price Index (APR)
May 3rd 11:30 AUD Trade Balance (MAR) 950 million
May 3rd 18:30 GBP Services PMI (APR) 53.5
May 3rd 19:00 EUR Eurozone Consumer Price Index (YoY) (APR) 1.3%
May 4th 00:00 USD ISM Non-Manufacturing Composite (APR) 58.0

Post by TorFX

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