As previously mentioned, the EUR/USD currency pair was one of the hardest hit trades during Thursday’s trading session. Yesterday it fell through that line in the sand, printing under 1.1650. The reason for the drop was the result of consistently robust economic data from the US. This information, combined with other recent data, has put upward pressure on the US dollar. Analysts noted that the exchange rate is fluctuating according to underlying market expectations. This change coincides with the growing backdrop of preparing for this year’s Jackson Hole economic policy symposium.
Further evidence of improvement in the S&P Global Composite Purchasing Managers’ Index (PMI) come from this week’s US data. It climbed to 55.4 in the flash estimate for August. This figure blew past monthly expectations and indicated a significant increase in new private sector economic activity. The upside surprise on the PMI data helped push the US dollar higher. This change resulted in a further bearish move on the EUR/USD pair.
During the second half of Thursday, trading activity accelerated. Renewed pressure on the EUR/USD kept the cross red closing near the lows of the day with the ongoing strong reaction to a strengthening dollar. Investors took their cue and overreacted as they read the tea leaves on the PMI Report. They viewed it as a signal of strength in the US economy, which took them to reexamine their short positions against the euro.
Even as the dollar-yuan cross danced around that symbolic value, talk about this year’s Jackson Hole economic policy symposium started bubbling up. With the Farm Bill meeting set to start on Thursday, this is good news indeed. It will examine key transitions in the labor market, which may have far-reaching implications for monetary policy deliberations. Analysts believe that any insights or announcements from this symposium could lead to increased volatility in currency markets, particularly impacting EUR/USD trading.
Secondly, the decline of EUR/USD is a story of broader trends taking place that are cooling the overall eurozone economy. Worries over inflation and slowing growth are escalating across Europe. Market participants are widely staring at the impact of these challenges on US economic data. The latest PMI data has sharpened these worries. It underscores a widening chasm between state of play here in the US versus across the pond in Europe.
And the strength of the US dollar is still increasing. Most of this increase is due to optimism regarding the federal government’s plan to raise interest rates in the near future. Central banks across the globe are relaxing their policies to suit the new economic reality. At the same time, as all of this occurs, traders and investors are often transfixed by the dollar’s performance.
Geopolitical issues are currently having an effect on the currencies smoothing of investor confidence. Equally important is the role of economic data. Continued uncertainty over global trade relations and domestic policies in both regions further complicates currency market dynamics.