The Euro (GBP) bounced back against the US Dollar (USD) on Wednesday after hitting a fresh low on Tuesday. The rally was caused by reports that the European Central Bank (ECB) may be close to an agreement to cut quantitative easing.
Euro (EUR) Strengthens amid ECB News
The rumours that the ECB is considering tapering its quantitative easing programme caused a spike in the Euro yesterday as markets reacted to the news that could potentially see an end to the record low interest rates that have been pressuring European banks in recent months.
This will come as great news to the banks struggling as low interest rates cut into their ability to remain profitable. This should also help the beleaguered Deutsche Bank which was at the centre of a German banking crisis as it faced a $14billion fine from the US Department of Justice.
The Euro also gained from the sharp downturn in the Pound as traders fled from the currency after the UK announced that it would begin the formal process for leaving the EU by the end of March 2017, causing investors to bet on businesses moving to the continent to remain part of the single market.
US Dollar (USD) Dips as Trump Campaign Recovers
The biggest event effecting the US Dollar is without a doubt the US presidential elections and yesterday saw the two vice-presidential candidates go head to head in a televised debates, with current sentiment leaning towards a win for Republican Mike Pence.
This win could help outsider Donald Trump regain some of the ground he lost in the previous week’s debates and could cause some volatility in the US Dollar. With Trump generally seen as a wildcard, any perceived swing in support for him can cause markets to become dovish towards the ‘Greenback’.
The US Dollar is likely to see quite a bit more movement this week as it faces a slew of domestic data releases. Among the most influential of these are the nation’s unemployment rate and ISM non-manufacturing composite reports.
EUR USD Forecast: 34 Days of Volatility Ahead of the US Elections
Looking forward, sentiment towards the US Dollar is largely going to be related to the US presidential election over the next month, with the currency becoming increasingly volatile in relation to how well Trump’s campaign does.
The ‘Greenback’ may also strengthen as investors bet on a Federal Reserve interest rate hike this December, as a US economic growth has fallen in line with plans outlined in last month’s speech by Fed Chairwoman Janet Yellen to raise rates later this year.
If the Euro is going to continue its current uptrend, the Eurozone will need to provide more positive data releases than it did today, which were decidedly mixed. Both French and Italian PMI releases dropped for the month and were only propped up Germany’s own PMI data.