Euro undermined by weak economic data

The euro weakened against the US dollar yesterday when worse-than-expected data released in the eurozone and the US, in addition to the bankruptcy of US carmaker Chrysler, weakened investors’ appetite for risk. In early trading the euro strengthened slightly against the greenback, as risk appetite improved following a surprisingly positive policy outlook briefing from the Fed the night before. However, the single currency’s gains were capped by a stream of less than positive news released yesterday morning. Initially, worse-than-expected unemployment figures in the eurozone raised investor concern that a recovery in the region may not yet be underway, as did news that US carmaker Chrysler was increasingly likely to go bankrupt by the end of the day. In addition, speculation surrounding whether the European Central Bank would follow the Fed and the Bank of England’s lead by implementing a quantitative easing program also weighed on investors’ minds ahead of the policy meeting next week. As a result, although the single currency did make some gains against the greenback initially, by lunchtime it was effectively unchanged on the day.

In the afternoon a raft of worse-than-expected economic data in the US induced a flight to the perceived safe-haven of the greenback, as investors became wary over the state of the global economy. Surprisingly poor Year-on-Year and Month-on-Month Core Personal Consumption Expenditure Prices and Personal Spending data for March resulted in some worries in the market, further exacerbated by the news late in the day that Chrysler had filed for Chapter 11 bankruptcy protection under the US code. Although the ailing car giant did meet a US government deadline to reach an agreement with Italian firm Fiat, the company’s bankruptcy did little to ease investor wariness that more bad news was not round the corner. As a result, they sold the single currency in favour of the perceived safe-haven of the greenback to reduce risk. The euro finished the day at $1.3227.

In early trading today, the single currency has clawed back its losses against the dollar from yesterday, as recent strong global equity market performance fuels hopes a recovery may be underway. There are no economic announcements in the eurozone today because of Labour Day, whilst in the US Factory Orders figures for March and ISI Manufacturing data for April are due at 15.00 BST.