MUFG: Slowing global growth momentum provides support for USD

The US dollar has strengthened against the euro due to slowing growth momentum outside the US, with key economic indicators from China and the euro-zone showing signs of weakening. This has contributed to the USD’s recent rebound.

Key Points:

1. USD Strengthening:

   • Euro Weakness: The euro has weakened against the USD, approaching the 200-day moving average support level around 1.0820.
   • Global Growth Concerns: Slowing growth momentum outside the US has provided support for the USD.

2. China’s Economic Slowdown:

   • Rate Cuts: Policymakers in China have cut rates, indicating concerns over meeting the government’s GDP target of around 5% for this year.
   • GDP Growth: China’s GDP growth slowed to 4.7% in Q2, down from 5.3% in Q1.

3. Euro-Zone Business Confidence:

   • PMI Surveys: The latest PMI surveys from the euro-zone show a decline in business confidence for the second consecutive month in July.
   • Composite PMI: The composite PMI reading of 50.1 in July compares to an average of 51.1 in Q2 and 49.1 in Q1, casting doubts on the euro-zone’s economic recovery in 2H of this year.
   • GDP Forecasts: The consensus forecast for euro-zone GDP growth in Q3 is currently estimated at 0.3% Q/Q, similar to the pace recorded in 1H of this year.

4. French GDP Growth:

   • Upward Revision: GDP growth in France for Q2 and Q1 was revised upwards by +0.1 point to 0.3% Q/Q respectively, providing some positive news amid recent negative political risks.

5. Commodity Price Index:

   • Sharp Fall: Bloomberg’s commodity price index fell to a year-to-date low, reflecting global growth concerns.
   • Commodity Currencies: G10 commodity currencies have underperformed this month, correlating with the fall in commodity prices.

Conclusion:

Slowing growth momentum in major economies outside the US, including China and the euro-zone, has contributed to the USD’s recent rebound. Weakening business confidence in the euro-zone and rate cuts in China indicate broader global economic concerns, which have also impacted commodity prices and related currencies. The USD has gained support from these developments, leading to its recent strength against the euro and other currencies.

This article was written by Adam Button at www.forexlive.com.