The forex market experienced a turbulent weekend, which benefited both the dollar and the yen as each served as safe havens against a slowing global economic growth. From China to the United States and Europe, the latest indicators of activity and industrial production, published Friday, have indeed come out below expectations.
Friday night, the euro yielded 0.6% to $1.1277 and the pound retreated 0.5% to $ 1.2576, while the dollar index rose 0.45% to 97.49 points and the yen advanced 0.2% to 113.37 yen/$.
French global activity contracted in December
The euro dropped to 0.8% in session, falling to $ 1.1270 lower, returning below the threshold of $ 1.13 for the first time since November 28th. Economic activity in the euro area fell to a four-year low, according to the IHS Markit Eurozone PMI Composite Output Index, released Friday, at 51.3 in December as compared to 52.7 in November.
The index was notably weighed down by its French component, which fell below the threshold of 50, thanks to disturbance caused by the movement of “yellow vests”. At 49.3 in December, the Markit IHS flash seasonally adjusted index of overall activity in France plunged from the 54.2 observed in November. The decline is particularly marked in services (49.6 against 55.1 in November), but it is more in the industry (47.7 after 50 in November).
Draghi more pessimistic for the euro zone, May in trouble on the Brexit
These disappointing figures came in the wake of statements by ECB President Mario Draghi, who was more pessimistic than before regarding growth in the euro zone. This has been revised downwards for 2018 and 2019, to 1.9% and 1.7%, respectively, and is expected to remain modest in 2020 (1.7% increase in expected GDP) and in 2021 (only +1.5%).
Like the euro, the pound ended the week down, falling 0.5% to $ 1.2576, while Theresa May failed to obtain EU concessions on the Brexit project, after the European summit on Thursday and Friday. The British Prime Minister, who survived politically Wednesday on a vote of no confidence from the conservative party, ruled Friday that it was still “possible” to obtain “additional clarifications” from the EU.