Decline for the Euro after Confidence Drops


The value of the Euro on the foreign exchange markets declined on Wednesday following a series of statistical releases which harmed its performance.

The currency fell by 0.1% to $1.1647 against the US dollar after the Purchasing Managers Index survey revealed that those responsible for buying decisions are at their lowest level of optimism since the end of 2016.

While studies showed that businesses in the Eurozone are growing, this caused dismay in the markets given that it makes a tighter monetary policy decision from the European Central Bank more likely.

However, the Euro’s fall was cushioned somewhat by a lack of buoyancy elsewhere.

The US dollar also declined in value, falling to 94.600 compared to a group of other large global currencies. This was in part due to the 4 July Independence Day federal holiday, which always impacts markets.

Sluggishness in the dollar market was also caused by the impending release of domestic information, including employment statistics out on Friday and the publicising of minutes from the last US Federal Reserve meeting.

In general, it is believed that the main development on the horizon for the international forex market is the risk of a trade war.

The USA is placing USD $34bn of tariffs on imports from China, and the Asian economic powerhouse is responding in kind with retaliatory tariffs of its own.

The expected impact on both the Chinese yuan and the US dollar is currently unclear, and the slow, gentle nature of the markets over the last week is in large part attributable to this uncertainty.

This could also have knock-on effects on other currencies around the globe. Chinese officials have encouraged the European Union to condemn Donald Trump’s decision to impose the tariffs, and this is a factor that could affect the Euro once the tariffs begin to take effect.

Despite these worries, the US dollar itself is still highly valued – and it’s looking unlikely that it is going to decline sharply in value or go into a long-term slump any time soon.

More broadly, Wednesday did see some gains for some currencies.

In spite of fears over the impact of the tariffs, the Chinese yuan still managed to be the main major victor from the Euro drop, and it gained almost a full percentage point over the course of the day.

In Britain, meanwhile, a surprise set of positive service sector performance statistics was released, and with suggestions among policymakers and analysts that it was time for a hike in interest rates, the pound performed well.

While the rest of Europe may have suffered on Wednesday, Scandinavia benefitted. Sweden, which does not use the Euro, saw its currency, the crown, rise in value by 0.6% against its continental currency neighbour, and it peaked at 10.2265. This was in large part due to the Swedish central banking system indicating that monetary policy was about to get tighter.

Over the western border in Norway, meanwhile, the currency there, also known as the crown, surged ahead as well.

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