Euro Exchange Rates in Sharp Decline as US Jobless Claims Surprise
- Written by: Gary Howes
-
The euro exchange rate complex has fallen on Thursday afternoon following some better-than-expected US jobs data.
Pound tipped to slightly underperform against the euro for remainder of 2015 and will dip to 1.30 by HiFX.
The declines come after a solid run for the euro to dollar and euro to pound exchange rate pairs. The EUR has been boosted as of late thanks to the rising yields on the German 10-year bond.
The shared currency has found favour against the pound, dollar and other majors as investor money flows into the Eurozone to take advantage of the higher potential gains made available by the improving yields.
At the time of writing we see however that the strength has come to an end:
- The euro to dollar exchange rate is (EUR-USD) is 0.75% lower on a day-to-day comparison at 1.1265.
- The euro to pound sterling exchange rate (EUR-GBP) is 0.33 pct lower at 0.7419.
These levels are still higher than we saw at the start of the week.
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US Data Improves, Sends Euro Lower
The USD has suffered at the hands of a string of poor data releases lately.
The negative sentiment was however thrown out the window on Thursday with the release of Initial Jobless Claims which read at 265K, markets were pricing the euro-dollar and euro-pound higher for a more pessimistic 280k.
The euro is being sold and the dollar bought in anticipation of the more important non-farm payrolls data release due on Friday.
Euro Surges vs Dollar, More Gains Could Lie Ahead
The dollar has been hit hard by the euro with the announcement that the ADP Nonfarm Employment (Apr) grew by 169K, markets had priced the USD for a reading of 200K.
Concerns are growing that the all-important release of non-farm payrolls on Friday will disappoint.
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The data seeks to confirm that the US economy is slowing and the timing of the first pro-USD interest rate rise is likely to be delayed at the US Fed.
According to Asmara Jamaleh at Intesa Sanpaolo the prospects for a rally towards 1.15 have improved:
“The decline of the euro halted on the failed attempt to reach the support at EUR/USD 1.1050 and on poor US data. Today it rose as far as 1.1270, breaching the resistance at EUR/USD 1.1250 which, if broken through, would technically reopen the path towards 1.15-1.16. A rise towards these levels may still be prevented, on condition of the Employment Report proving strong on Friday.”
The Longer-Term Outlook Remains Negative
Taking a longer-term view of the currency markets we continue to expect the outlook to favour the US dollar.
That said, the return to strength in the USD may be delayed for some time if the recent data releases are to be believed.
TD Securities warn that the euro could well continue to be undermined by the European Central Bank:
“The broad-based depreciation in the EUR has taken a pause after a long spate of soft US data and on what we think is extremely premature speculation that the ECB will end up tapering its QE program well before September 2016.
“But we do believe that the EUR downtrend will resume.”
HiFX Forecast a GBP/EUR Fall to 1.30
The pound failed to receive support against the euro despite the release of better-than-expected data from the UK’s services sector.
However, gains were seen against the dollar.
Andy Scott of HiFX, says he is now forecasting a decline in the GBP-EUR based on recent economic information:
“Sterling was given some respite on Wednesday following the release of much better than expected service sector data for April, bucking the trend of weaker manufacturing and construction activity. Sterling has faced fairly heavy selling pressure recently, having fallen by almost 3% against the dollar from 1.55 last week, and almost 4% against the euro from above 1.40.
“The uncertainty of the General Election tomorrow and the disappointing first quarter GDP figures last week have certainly made sterling less attractive, particularly against a resurgent euro.
“The purchasing managers’ indexes for last month, appear to indicate that sterling’s strength against the euro is having a negative impact on the production of physical goods, which are less competitive on a global scale. However, services such as legal and accounting appear to be less price sensitive. The outlook for sterling remains positive although the election outcome could cause increased volatility in the short-term.
“We continue to look for it to strengthen against the U.S. dollar this year towards 1.60, whilst we feel it will now slightly underperform against the euro and will dip to 1.30.”
