Forex - Euro Slumps Against the Dollar; Weak Eurozone Growth


The U.S. dollar remains in demand, and it’s the beleaguered euro which is taking a lot of the associated beating Friday as investors fret about low growth in the single currency region.

The dollar was also underpinned by the announcement of the New York Federal Reserve on Thursday that it will cut the volume of its open market operations slightly ahead of schedule, tightening liquidity in U.S. funding markets.

At 03:00 ET (0800 GMT), EUR/USD traded at 1.0842, having fallen as low as 1.0828 overnight, the lowest level since April 2017. The U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 98.957, again just off heights not seen for over two years. GBP/USD traded at 1.3058, trading in relatively quiet waters.

Thursday’s GDP figures for Germany, the eurozone’s largest economy, showed that growth stagnated at the end of 2019, leaving the economy in a weakened state even before the emergence of the new coronavirus threat.

December saw the biggest drop in German industrial production since the global financial crisis a decade ago.

Adding to these weak figures, the European Commission's gloomy outlook for the European economy did nothing to help lift sentiment surrounding the euro, analysts at Danske Bank said, in a research note.

“Although the EC still sees the euro area on a 'path of steady and moderate growth' with GDP expanding by 1.2% in 2020, the report stressed that risks to the growth outlook remain tilted to the downside, not least with the coronavirus outbreak as a key new downside risk emerging,” Danske Bank said.

The Danish bank has recently lowered its euro area GDP growth forecast to 0.8% for 2020, from 0.9%.

The latest growth figures for the euro zone as a whole are scheduled for release at 5:00 AM ET (1000 GMT), and are expected to show growth of 0.1% on the quarter, 1.0% on the year. The risk is for a downside surprise, after the German release.

Contrast this state of affairs with the economic outlook in the U.S., and there’s no surprise the single currency is feeling the pinch. The latest U.S. employment numbers are strong, annual GDP growth was 2% last year, and the Federal Reserve felt confident enough about the banking sector to shrink repo operations further.

“Our baseline is now for a continued relative underperformance of European financial assets relative to USD denominated assets,” added Danske Bank. “Hence, we have revised our EUR/USD profile materially, to 1.07 on 12M, down from 1.15 previously.”

Source: https://www.investing.com