Yesterday (19/01), EUR/USD ticked up in the context of an increasing likelihood that the Federal Reserve (Fed) could delay its first interest rate hike of the year after the International Monetary Fund (IMF) lowered its global economic growth forecasts for 2016. The pair moved between $1.0860 and $1.0938, before settling at $1.0911, up 0.17% compared to the open price. The euro has closed higher against the dollar in three out of last four sessions and four of the last six trading days. Since closing 2015 at $1.0860, the euro is relatively flat versus its American counterpart on the new year, up by less than 1%.
On Tuesday, the IMF cut its global growth forecasts for 2016 by 20 basis points to 3.4%, marking the third time the agency has lowered its estimates over the last year. The decision came hours after China’s National Bureau of Statistics said the national economy grew by 6.8% in the fourth quarter, down slightly from the previous quarter and the weakest since the first quarter of 2009. As a result, annual GDP in 2015 rose by 6.9%, significantly lower than growth of 7.3% a year earlier and the lowest amount in a quarter of a century. The reading fell in line with analysts’ expectations, as strong services and consumption data offset weak manufacturing and exports figures.
From 1989 to 2015, the Chinese economy grew nearly 10% a year, including an all-time high of 15.4% in 1993. The Chinese government set a target of 7% growth in 2015, as the economy continues a transition from depending on manufacturing and investment to services and consumption.
Investors await a meeting of the European Central Bank (ECB) on Thursday (21/1) for further signals of divergence between central banks in the U.S. and the euro zone. The ECB is expected to cut the interest rate for another 10 basic points to -0.4% from the current -0.3% level, amid concerns related to slowing growth in China and the impact of crashing oil prices on the global economy.
Next week the Federal Open Market Committee (FOMC) is largely expected to hold its benchmark interest rate unchanged at its January meeting due to the instability of manufacturing and service sectors. Besides, the gloom on oil market after Iran’s sanction lift-off is likely to last long, not to mention the conflict among OPEC members, which can make it hard for this cartel to negotiate a new production celling. Fed is considered not to raise interest rate until a clear evidence that the inflation is supported to reach the target of 2%. On Tuesday, the CME Group’s Fed Watch tool placed the probability of a rate hike next week at 8.4%.
The Europe and US stocks closed in green in yesterday session indicating the flow of money is out of safe-haven assets such as government bonds, Japanese Yen, Gold and US dollar as well, which makes the greenback bouce back against Yen and Gold but mildly lower against other currencies including Euro.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, hit an intraday low of 98.93 before closing at 99.17, down 0.08 on the session.
Analysis of Group Fiinvesting