The EUR/USD dropped to its lowest in 14 months on Sept. 24, 2014.
EUR/USD moves lower
The currency pair fell to 1.2774, its lowest since July 2013, before recovering somewhat to reach 1.2780 at 5 p.m. New York time, according to Bloomberg.
One piece of economic news that coincided with this decline was a report on German business confidence, which showed this sentiment dropped in September. During the month, the Ifo Business Climate Index for industry and trade reached 104.7, its lowest since April 2013, down from 106.3 in August. September was the fifth consecutive month where this index moved lower in value.
In addition, survey participants’ expectations for the nation’s six-month business outlook approached their lowest in two years. Hans-Werner Sinn, president of the Ifo Institute, emphasized that Germany’s business climate is running into some headwinds.
Germany no longer a ‘shooting star,’ contends expert
Jennifer Vail, head of fixed income at U.S. Bank Wealth Management in Minneapolis, weighed in on the situation when speaking with Bloomberg.
“It used to be that you could hail Germany as the shining star, but that’s not the case anymore,” she told the news source.
The Ifo Institute released this information the day after a separate purchasing managers report showed that in September, growth in the services and manufacturing industries decelerated, according to the media outlet.
Statements made by the Bank of Spain might have also helped paint a picture of deteriorating economic conditions, as the financial institution said that growth in both jobs and private consumption probably decelerated during the third quarter, Reuters reported.
Draghi announces easy money plans
Another event that potentially coincided with the price movements of the EUR/USD was European Central Bank President Mario Draghi’s recent statements about monetary easing, as he said on Sept. 24 that the financial institution would maintain accommodative policy for as long as needed, Investing.com reported.
“Monetary policy will remain accommodating for a long time and I can tell you that the Governing Council is unanimous in committing itself to using the tools at its disposal to bring inflation back to just under 2 percent,” he told the news source. “Interest rates will remain low because they can’t get much lower.”
Draghi made these statements after the ECB lowered its rates earlier this month, in its efforts to combat lackluster inflation, the media outlet reported.
In the event the financial institution announces further measures aimed at stimulating economic growth in the 18-nation euro zone, these initiatives could easily put downward pressure on the common currency. For example, additional bond purchases would bolster the region’s money supply, which could cause depreciation in the euro.
Federal Reserve paring stimulus
The president of the ECB made these statements at a time when the Federal Reserve has been tapering quantitative easing for several months and is now considering when it will bolster benchmark interest rates.
QE involved the central bank buying $85 billion worth of debt-based securities every month from late 2012 to the end of 2013. At the beginning of this year, the financial institution reduced these transactions to $75 billion per month, and then steadily lowered the purchases.
More recently, market participants have placed greater interest in the timeline the Fed will use to hike its benchmark interest rates, as increasing these to a more normal level would be the second part of gradually winding down monetary stimulus.
Strong US data
Robust U.S. housing figures could have helped push the greenback higher, as government data showed that the nation’s manufacturing sector continued to grow in September. Not only was the industry’s rate of expansion robust, it matched the four-year high reached in August, according to Investing.com.
Separate data showed sales of new U.S. homes surging 18 percent to 504,000 in August, far surpassing the projected rise to 430,000, the media outlet reported. In addition, July figures for new home sales were revised upwards, showing a 1.9 percent gain.
“It seems that there’s little to stop the dollar other than the market’s own exuberance,” Steve Barrow, head of G10 strategy at Standard Bank Plc. in London, wrote in an e-mailed note, according to Bloomberg. “The trend is definitely your friend right now and periods of dollar weakness merely provide better levels to buy the currency.”
Experts chime in on euro
While Barrow provided his input on the greenback, several other experts gave their two cents on the common currency’s future.
“The euro is going to continue to drift lower,” Jeremy Stretch, who works for Canadian Imperial Bank of Commerce in London as head of foreign-exchange strategy, told the news source. “As a consequence of a weaker Germany, by definition the euro zone is appreciably weaker too, and it just puts a further onus on the ECB.”
Investors who trade forex might benefit from knowing about the EUR/USD’s recent plunge to a 14-month low, as well as the developments that surrounded this decline. In addition, they could potentially make better-informed decisions if they have a better sense of where market participants believe the currency pair will go further down the line.