Excel Currencies Blog

Investors flock to the safe-haven USD after underwhelming Chinese & European economic data..

Both the £-$ & €-$ have fallen to fresh 3-month lows today as traders continue with their risk-off mood. Many investment houses had predicted a strong end to the year for the US Dollar, but it looks like it has come much earlier than anticipated. 

Better than expected US economic data of late means that the Fed can maintain interest rates at current levels for an extended period (good news for USD). In contrast, China's services sector grew at the slowest pace so far in 2023, which confirms the Chinese economy is caught in a lengthening slowdown (hence the investor risk-off mood). 

In Europe, August's data showed the Euro-Zone economy had fallen into contraction mode. This prompted a rise of 0.5% initially in the £-€ rate with potential of more to come in the days ahead (data dependent). The problem with this pair is that the upside is extremely limited as it is already trading at the top of its range.

We expect a further 0.5% more can be reached from the current GBP v EUR level, which would then hit a hedging possibility not seen for 1-year. GBP v USD may recover some percentage points at some time in the near future or it may continue to decline as expected in most economists forecasts. Therefore hedging now would be a wise decision in our opinion.