The US dollars into euros interbank exchange rate stands at 0.8949 today at the time of writing. This is just -1.28% below the greenback’s recent 27-month high versus the euro, its strongest since May 15th 2017, reached last August 1st, of 0.9065.
By comparison, back at the start of 2019, the USD was as low as 0.8704 versus the EUR. So the mighty buck has since strengthened by over +3.5 cents, or by +4.14%.
This might benefit you, if you’re a Eurozone citizen selling property abroad in the United States, to repatriate the money home, or a US business owner importing Eurozone products.
This is because, when you transfer money from the USA to your Eurozone bank account, you might get a higher euro total, compared to if you’d exchanged currencies in the last 27 months.
In turn, this would make it more profitable for you to repatriate the funds of your American property sale, or cut your international payments costs to import Eurozone goods or services.
A first factor why the US dollar into euros interbank exchange rate stands near this 27-month high is because the Eurozone economy has showed signs of slowing recently, say trusted data.
However, looking forward, the greenback’s value might be affected by the fact that the US President Donald Trump has ramped up his trade with China, the world’s second largest economy.
Let’s take a closer look at these reasons why the US dollars into euros interbank exchange rate has neared this 27-month high, and what might affect the value of the buck, looking ahead.
US Dollars into Euros Rate Nears 27-Month High, as Eurozone Economy Slows
As I mention, a first reason why the value of the US dollar versus the euro has neared this 27-month high is because the Eurozone’s economy has slowed further, said trusted statistics recently.
This might cause the Eurozone’s GDP (Gross Domestic Product) growth to decelerate again in Q3 2019, and prompt the European Central Bank (ECB) to cut interest rates in the near future.
We know that the Eurozone’s economy has continued to slow because, to start with, European investors’ confidence fell to -13.7 this month, said Sentix yesterday.
This figure was well below economists’ forecasts for -7.7, as well as July’s figure of -5.8. In particular, the currency bloc’s money managers are worried about the impact of Brexit, and the threat of the USA’s trade tariffs.
In addition, business activity in Germany, the Eurozone’s largest economy, continues to slow. According to economics watchdog IHS Markit yesterday, Germany’s composite PMI (Purchasing Managers’ Index), which measures output in Germany’s services, manufacturing and construction sectors, eased to 50.9 in July.
This is below June’s 51.4, and increasingly close to the 50.0 figure that separates growth from contraction.
In fact, according to Germany’s central bank, the Bundesbank, it’s likely that Germany’s economy contracted in Q2 2019, between April and June.
This is because the threat of US President Trump’s trade tariffs is weighing heavily on Germany’s manufacturing sector, the backbone of Germany’s economy. These IHS Markit figures suggest that the downturn has continued into Q3.
With this in mind, it’s possible that the Eurozone’s economic growth will ease further over the Summer. Already, in Q2, the common currency bloc expanded by just +0.2%, compared to +0.5% growth in Q1, in the first three months of the year.
What with Germany’s economy perhaps shrinking, and the Eurozone’s investors increasingly gloomy, the euro has fallen versus the US dollar.
As a result, it’s increasingly likely that the Eurozone’s central bank, the ECB, could cut interest rates as soon as September.
In the past fortnight, the ECB held interest rates at their all-time lows of 0.0%, yet signalled that they’re prepared to lower borrowing costs, and extend their vast monetary stimulus, to support growth. In particular, ECB President Mario Draghi warned that the outlook is “getting worse and worse”, according to Bloomberg.
However, it’s worth adding that there’s been some good economic news from the Eurozone recently too. To be specific, Germany’s factory orders rose by +2.5% in June month-on-month, said the Bundesbank today, above forecasts.
That said, whether this ray of economic sunshine will be enough to dispel the Eurozone’s dark economic clouds in the coming weeks remains to be seen.
USD to EUR Rate Might Be Affected, as Trump Adds to China Tariffs
On the other hand, looking forward, the US dollars into euros interbank exchange rate might be affected, because US President Donald Trump has increased America’s tariffs on China.
This might influence the value of the US dollar, because President Trump’s decision will make buying Chinese products more expensive in America. This may encourage the Federal Reserve to again cut interest rates.
Last Thursday 1st August, President Trump announced that the USA will add a 10% tariff on $300 billion worth of Chinese imports. Already, the United States imposes a 25% levy on $250 billion of Chinese shipments to America.
So the USA will now place tariffs on almost all China’s imports to the United States, which in 2018 reached a value of $539.7 billion, reports The Guardian newspaper.
President Trump announced these tariffs, because he’s dissatisfied with China’s progress in the two countries’ ongoing trade discussions.
In particular, the President wants China to stop maniuplating the value of its currency, the yuan renminbi, and buy more American farm products, especially soy. So far, China has been equivocal in its commitment to these aims.
However, although President Trump’s tariffs are intended to weaken China’s economy, and so convince the Chinese to cede ground in the trade talks, the levies might also hurt America.
This is because, when the United States puts tariffs on China’s imports, it’s more expensive for American shoppers to buy these products. This is to say, a tariff is like a price hike for US consumers.
As a result, the President’s levies might backfire, and weaken America’s economy. In turn, this might affect the value of the US dollar.
To alleviate this, it’s possible that America’s central bank, the Federal Reserve, will cut interest rates in September or October, below their current 2.00%-2.25%. Already last week, the Fed cut borrowing costs by -0.25%, for the first time in a decade.
If the Fed cuts interest rates later in 2019, this would make it cheaper to borrow money in the USA. This would cut America’s mortgage costs, or lower their credit card repayment fees.
This might alleviate the higher prices of President Trump’s Chinese tariffs. However, lower interest rates simultaneously make investing in the USA less profitable. So looking forward, this might affect the US dollar.
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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email firstname.lastname@example.org.