Forex trading resulted in the EUR/USD pair declining on Feb. 20, as global market participants responded to data that pointed to weak economic conditions in Europe.
The common currency dropped to as little as $1.3685, according to Reuters. This was the second day when the euro declined against the greenback, after it rose to was much as $1.37735 on Feb. 19. This represented the highest value that the EUR/USD reached in seven weeks.
Key impact of Markit data
The exchange rate for the two currencies was impacted as global market participants responded to data indicating that in February, a key index released by Markit fell to 52.7, the media outlet reported. This figure fell short of the reading of 53.1 that was predicted.
“A dip in the euro-zone PMI provides a reminder that the region’s recovery continues to be uneven and fragile,” Chris Williamson, who works for Markit as chief economist, told The Wall Street Journal. “Growth continued to be led by Germany, which contrasts with a worrying renewed downturn in France.”
France suffers deflation
In addition, data released by the statistics bureau of France revealed that the European nation is suffering from declining prices, according to the news source. Between December and January, the consumer prices in the country dropped 0.6 percent, falling at the sharpest rate on record. This was the most severe month-to-month drop that the measure experienced since the statistics agency began keeping records in 1990.
It is important to note that in addition to suffering from deflation, France also experienced a decline in business activity, as the PMI data for the European nation fell short of predictions, Reuters reported.
Impact of strong U.S. data
It is important to note that while the data released for Europe was weak, reports pointed to strength in U.S. economic conditions, according to the media outlet. Data provided by Markit revealed that in February, an increase in new orders resulted in U.S. manufacturing activity rising sharply. This particular measure grew at its fastest pace in close to four years.
Global market participants involved in forex trading responded to this information by causing the greenback to rise relative to many other currencies, MarketWatch reported. The ICE dollar index increased to a reading of 80.280. This index, which compares the value of the greenback to various other currencies, had a reading of 80.191 on the day before.
“The U.S. economic data this morning definitely benefited the dollar across the board,” Blake Jespersen, who works for BMO Capital Markets in Toronto as managing director of foreign exchange, told Reuters.
It was noted that in addition to the strong manufacturing data, markets were also impacted by data pointing to a recent decline in jobless claims, according to the news source. The Labor Department indicated on Feb. 20 that during the prior week, the number of people who filed these initial applications for unemployment benefits fell by 3,000. As a result, the figure reached a seasonally-adjusted 336,000 during the week. This provided market experts with some reason to be positive, after the last two monthly jobs reports released by the government agency contained lackluster figures.
The progress that the labor market makes going forward could be crucial to forex trading, as the unemployment rate has been identified by the Federal Reserve as being key to quantitative easing. If the jobs picture improves rapidly, this development will make it easier to taper QE more quickly. However, if the labor market does not get better at a fast enough rate, the situation will place pressure on the U.S. central bank to maintain these bond purchases.
The policy stimulus used by central banks across the world has been noted by market experts as having a key impact on forex trading.
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