After initially falling this morning due to lacklustre German PMI figures the EUR USD exchange rate rallied close to a new two-month high today as markets remain worried about Donald Trump’s new administration.
Trump Fears Support Uptrend in Euro US Dollar (EUR USD)
The Euro continued rising against the US Dollar today as markets grew increasingly unnerved by the lack of any clear published economic plans to outline Trump’s ambitious stimulus strategy.
Even the most optimistic of investors are beginning to have doubts that the new President will be able to deliver upon his campaign promises to create more jobs through wide reaching infrastructure projects, with his recent protectionist rhetoric worrying investors that he could cause the US economy to become isolated from the rest of world.
Trump used his first day in office to pull the US out of the Trans-Pacific Partnership and to rework the NAFTA trade agreement. While Trump has argued that free trade deals have crippled the US economy, calling NAFTA ‘one of the worst deals ever’, investors are wary that Trump could cause more damage than good. As Gregory Daco, an economist at Oxford Economics argues;
‘A renegotiation of the North American Free Trade Agreement could adversely impact Midwestern manufacturing states who swung for Trump in 2016.’
There are also fears that Trump could push the US into a trade war with China as he proposes heavy tariffs on imports from China, which he blames for hampering US competitiveness.
Euro Dips as German PMI Disappoints
The Euro dropped briefly this morning as Germany’s latest PMI reading proved to be a mixed bag.
While Germany’s Manufacturing PMI surprised investors by rising from 55.6 to 56.5 in January after it was expected to dip to 55.4, it was not enough to counter a lacklustre performance by the Services sector.
German services PMI was forecast to have climbed from 54.3 to 55.4 at the start of 2017, but shocked analysts as it unexpectedly fell to 53.2, reaching its lowest levels since September.
The fall has largely been attributed to the declining value of the single currency in recent months and the rising operating costs for a number of businesses as oil and commodity prices steadily rose towards the end of 2016.
EUR USD Forecast: German Business Climate Report Ahead
The EUR USD exchange rate may advance further tomorrow morning following the release of Germany’s latest Business Climate reading, with analyst expecting the Ifo to report that business sentiment climbed from 111 to 111.2 in January.
Meanwhile, markets forecast that Wednesday’s house price figures from the US will show that prices held at 0.4% in November, providing little upward momentum for the US Dollar.
Looking to the end of the week the ‘Greenback’ is likely to depreciate yet again as economists predict that the US Q4 GDP report will show that the growth rate fell from 3.5% to 2.2% last year.