What has been behind the recent decline in EUR/USD?

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15 February 2019


The Euro briefly edged back above the 1.13 level against the US Dollar on Thursday, although remains stuck just above its weakest position in three months, somewhat surprising given recent dovish commentary out of the Federal Reserve.

But what has been behind the Euro’s relatively poor performance so far this month?

  1. Eurozone economic data continues to disappoint

Macroeconomic news out of the Euro-area has continued to fall short of expectations of late, with early signs suggesting that the bloc’s economy could be set to slow further in the first quarter of 2019. Data out yesterday showed that the German economy posted flat growth in the fourth quarter of 2018, barely avoiding a recession.

Figure 1: German GDP Growth Rate (2012 – 2018)


  1. Trump set to sign budget deal

After months of disagreement between Trump’s Republicans and the opposition Democrats, which culminated in the longest running government shutdown in US history, President Trump finally appears close to signing a budget deal that would keep the government running. While Trump has expressed frustration at the proposed deal he appears opposed to another government shutdown.

  1. Safe-haven flows

Concerns over an escalation to the US China trade conflict and Brexit have continued to fuel inflows into the safe-haven US Dollar, deemed less risky during times of financial market stress. Despite some positive developments regarding US-China trade, time is running out before the 1st March deadline for a deal to be reached, at which time Trump’s tariffs on $200bn worth of Chinese goods could rise from 10% to a far more meaningful 25%.

  1. Spain on course for fresh general election

Political uncertainty has also reared its ugly head again in Europe, with Spain primed for an early election after the country’s socialist government failed to force its budget through parliament. This would mark the third general election in the Eurozone’s fourth largest economy in just five years.

May loses another Brexit vote, US retail sales worst in 9 years

Meanwhile, Sterling hovered around its lowest level in a month this morning following another Brexit vote defeat for Prime Minister Theresa May.

MPs voted by 303 to 258 against a motion that the House supported the PM’s Brexit strategy. May, who was not present for the debate, is currently in talks with European Union leaders over renegotiating the NI ‘backstop’. While largely a symbolic defeat, it could potentially weaken her stance in talks with Brussels. Our base case remains another failed vote on the withdrawal bill would pave the way for a delayed Brexit, which would be good news for the Pound.

Elsewhere, US retail sales fell short of expectations, recording their largest drop in more than nine years in December. Sales fell by a fairly staggering 1.2% MoM, after investors had eyed a modest increase, suggesting that the world’s largest economy lost steam around the turn of the year. The US Dollar actually held up fairly well to the news, possibly due to the data’s time lag. It does, however, not bode well for future Fed hikes and makes us more confident in our call for stable policy from the FOMC throughout 2019.