EUR/USD drops amid robust US data

The EUR/USD declined on Oct. 16, as market participants responded to robust U.S. economic data.

EUR/USD declines in early trade

The currency pair fell to as low as 1.2706 early in the session, according to Investing.com.

This change in direction happened after the greenback dropped on the previous day, amid a decrease in retail sales that was stronger than expected, Bloomberg reported. This news helped the dollar reach $1.2807 relative to the common currency. 

“The data that sparked the move was weaker than expected but overall data-wise, and as far as the growth outlook is concerned, the U.S. looks more favorable than elsewhere,” Ian Stannard, the London-based head of European foreign-exchange strategy at Morgan Stanley, told the media outlet.

One development that seemed to support his view was news that industrial production enjoyed a greater than expected improvement in September, according to Investing.com. This activity increased 1 percent during the month, compared to the 0.4 percent hike that was expected. The figures coincided with the EUR/USD’s drop on Oct. 16.

US jobless claims hit 14-year low

Separate data from the U.S. Labor Department revealed that the number of jobless claims fell during the week ending Oct. 11, declining by 23,000 to reach a seasonally-adjusted 264,000. This represented the lowest reading for the weekly jobs figure since April 15, 2000, when it reached 259,000. The four-week moving average also hit a 14-year low, dropping to 283,500, the least since June 10, 2000.

The weekly jobless claims figure beat the expectations of analysts, as they predicted these applications would rise 3,000 to 290,000, according to Investing.com.

The data on industrial production and jobless claims were released shortly after the U.S. Commerce Department announced an upward revision to second-quarter gross domestic product growth. According to this change, the nation’s economy grew at an annually-adjusted rate of 4.6 percent during the period, up from the prior estimate of 4.2 percent.

Weak economic data in Europe

These robust U.S. reports contrasted with the latest developments in the euro zone, where five separate countries in the region suffered deflation in September, Reuters reported.

The latest inflation figures in the 18-nation euro zone helped support the perception the European Central Bank should step up its current stimulus, which bolstered the dollar versus the common currency, analysts told the news source.

Central bank policy

The differing economic situations in the U.S. and Europe create a situation where the Fed and the ECB will likely pursue different policies. While the former is considering when it will begin hiking its benchmark interest rates, the latter may take more liberal measures with its stimulus.

Market participants have been scrutinizing central banks around the world for the last several years, watching as they injected trillions of dollars into the money supply and held benchmark borrowing costs near record lows in an effort to jumpstart economic growth following the financial crisis.

The Fed purchased more than $4 trillion worth of debt-based securities and started tapering its latest round of bond purchases – known as quantitative easing – at the beginning of the year. As these transactions slowly declined in volume, market participants turned their sights to the central bank’s timeline for raising interest rates.

Fed speculation

Martin Schwerdtfeger, currency strategist at TD Securities in Toronto, commented to Reuters on the price movements the EUR/USD experienced on Oct. 16. He also mentioned how Fed policy will likely affect the value of the greenback.

“The market is unwinding some of the moves that we saw yesterday as we come to the conclusion that, even if a Fed liftoff comes a bit later, that still means the U.S. dollar continues to have an advantage relative to most measures,” Schwerdtfeger told the news source.

The U.S. dollar has enjoyed a strong rally in 2014 amid speculation that the nation’s central bank will hike benchmark interest rates, according to Bloomberg. However, the currency encountered some headwinds after the minutes of the September Federal Open Market Committee were released. In these minutes, the policymakers said that if economic growth in foreign nations is lackluster, it could impact the U.S. expansion.

What remains to be seen is how well the nation’s economy will perform going forward. The country has been in an expansion since the second quarter of 2009. Win Thin, head of emerging markets currency strategy with Brown Brothers Harriman in New York, spoke to this matter.

“I still remain pretty confident that the U.S. economy will hold up,” Thin told the news source. 

Investors interested in forex trading might benefit from knowing about the price movements the EUR/USD experienced on Oct. 16. While being aware of the fluctuations in this currency pair could be helpful, knowing the developments – including key economic reports – that surround these changes in value is also important.