Euro falls to near two-year low on weak German data

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25 April 2019


The Euro sank to its weakest position in almost two years against the US Dollar this morning, driven lower by a broadly stronger greenback and ongoing concerns over the health of the German economy.

ermany’s economy has been languishing for some time now, barely avoiding a recession in the final quarter of last year. Fresh business confidence data out on Wednesday far from helped alleviate concerns, with all the ZEW sentiment indices deteriorating in April. With German activity weak, domestic Bund yields negative and higher rates from the ECB seemingly a long way off, the Euro is buckling under the pressure. The EUR/USD rate fell below the 1.12 mark yesterday morning and is now languishing at its weakest position since June 2017.

Weak growth globally continues to make the US Dollar an attractive proposition to investors, which again marched higher on a trade-weighted basis yesterday. While there has been no real catalyst in the US behind this week’s sharp upward move in the currency, investors remain pretty optimistic about tomorrow’s first quarter GDP estimate. In the meantime, durable goods order data is likely to receive some attention this afternoon. The market is eyeing a pretty solid number, meaning that the bar for an upside surprise is quite high.

Dovish Bank of Canada hints at interest rate cut

The Canadian Dollar was one of the worst performers yesterday, sinking to its weakest position in four months following another dovish assessment from the Bank of Canada.

In line with almost every other major central bank of late, the BoC has struck a cautious tone, suggesting that the next move in rates could be lower. The BoC held rates at 1.75%, although sharply lowered their economic growth forecast for 2019 to just 1.2% from 1.7%, largely due to softer housing activity and consumption. While we think that stable policy remains more likely than a cut this year, the bank’s comment that an ‘accommodative policy interest rate continues to be warranted’ caused the market to significantly ramp up bets for an easing in policy from the BoC in 2019.

Brexit woes keep Sterling at ten-week lows

With little news out of the UK, the Pound was driven largely by external factors yesterday. Broad greenback strength caused Sterling to slide to a ten-week low. While there was no real news out on Wednesday, the markets remained pessimistic that an end to the current Brexit impasse could be in sight. There have been rumours circulating that Theresa May could put her WA to another vote next week. This presents another potential downside risk to the Pound, given that it would once again be highly likely to fail.