The Euro (EUR) has fluctuated wildly against the US Dollar (USD) today after a surprise win for Republican candidate Donald Trump in the 2016 US presidential election.
The EUR USD exchange rate came very close to reaching 1.13 immediately following the result but slumped to 1.09 later in the afternoon as markets began to absorb the shock that Trump would be the next US president.
Euro US Dollar (EUR USD) Unsettled by Trump Victory
The Euro initially rose against the US Dollar as investors reeled away from the ‘Greenback’ in response to the potential risks posed by the Trump Presidency.
The US Dollar quickly recovered however as markets were reassured by Trump’s more ‘presidential’ tone in his victory speech, avoiding his usual controversial rhetoric in favour of congratulating Clinton on a well-run campaign.
The exchange rate is likely to remain volatile for the foreseeable future however as the market begins to re-evaluate after its kneejerk reaction to Trump’s victory. As George Saravelos of Deutsche Bank explains;
‘There is an unambiguous rise in policy uncertainty and the key question is how much does this impact near-term US and global growth. Both the Fed and the markets will be closely scrutinizing upcoming releases, but we will have to wait until the week of November 21st for the first business confidence surveys.’
US Dollar May Slide if Fed Hike Bets Decline
One of the major impacts of Trump’s victory is likely to have on the value of the US Dollar is whether the global uncertainty of his presidency will cause the Federal Reserve to hold off from raising interest rates in December as was widely predicted before the election.
As PNC’s chief economist Stuart Hoffman Forecast;
‘With much greater economic uncertainty likely in the months ahead, the Federal Open Market Committee could decide to hold off on an increase in the fed funds rate; PNC had been expecting the FOMC to raise the rate at its December 13-14 meeting, but that looks much less likely now.’
There is also market concern that Fed Chair Janet Yellen may also resign following the fierce criticism she has faced from Donald Trump over the last few months over her reluctance to raise interest rates. Her potentially departure would greatly weigh on the US Dollar as it would cause further uncertainty over the direction of the US economy.
EUR USD Forecast: Exchange Rate to Remain at the Mercy of Market Sentiment
It is highly likely that the EUR USD exchange rate will continue to be driven by market uncertainty towards the US election result for the remainder of the week as investors focus on the fallout of a Trump victory.
Meanwhile it is almost guaranteed that any data releases by either the Eurozone or the US will be largely ignored, with even the German consumer price index unlikely to force much movement between the pairing.