Euro US Dollar Exchange Rate Dips as Japanese Yen Retreats

The EUR/USD exchange rate slipped this morning as the pairing was undermined by a sudden retreat in the Japanese Yen (JPY).

At the time of writing the interbank EUR USD exchange rate was in the region of $1.1743, down by around 0.34% in the wake of the Japanese elections over the weekend.

US Dollar (USD) Exchange Rates Strengthened by Downturn in the Japanese Yen (JPY)

The US Dollar is trending higher this morning as investors flock to the currency following a drop in the Japanese Yen at the start of this week’s session.

The slide in the Yen comes as Japanese Prime Minister Shinzo Abe celebrates victory in a snap election over the weekend, with his Liberal Democratic Party-led (LDP) coalition maintaining its two-thirds ‘super majority’.

Abe called the snap election last month as he sought a mandate to deal with the ‘crises’ in the region, with North Korean aggression seen as the most pressing issue facing the Prime Minister.

However it is the expected continuation of ‘Abenomics’ that sent the Yen lower, with analysts expecting that the Bank of Japan (BOJ) will maintain its dovish stance as it attempts to tackle deflation.

This prompted investors to steer towards the ‘Greenback’ whose appeal has also been bolstered by the passing of the Trump administration’s fiscal budget for 2018 late last week.

Markets are hopeful that that the successful passing of the budget is the first step in Congress approving Trump’s long awaited tax reform’s as a clause in the budget will allow republicans to approval the reforms without interference from the democrats.

Euro (EUR) Subdued as Draghi Faces QE Challenge

The Euro started the session on uneven footing this week as investors await a key European Central Bank (ECB) policy meeting later this week.

Markets are expecting that Thursday will finally see ECB President Mario Draghi announce the long-awaited start to the tapering of the bank’s quantitative easing programme, in place since 2015.

However, the task facing Draghi is how best to ween markets off the substantial stimulus that the ECB has issued without causing too much upset to the Eurozone economy and the Euro.

Analysts forecast that policymakers may set to cut bond purchases from €60bn to €20-30bn next year, with such a pace likely to relegate a possible rate hike from the bank until at least 2019.

EUR USD Forecast: Eurozone Services and Manufacturing Growth to Improve?

Looking ahead the EUR USD exchange rate is likely to mount a recovery tomorrow should the Eurozone’s latest PMI data show that growth in the bloc’s key sectors continued its unrelenting march higher in October.

While economists currently predict that the Eurozone’s composite PMI will have slipped slightly from 56.7 to 56.5 this month, it has had a habit of besting expectations in over the last year, leaving the chances of another shift higher well within the realm of possibility.

Meanwhile, the US Dollar is likely to remain stubbornly resistant over the coming weeks as investors remain confident in the currency ahead of an expected December rate hike from the Federal Reserve.

Hannah Wilson

Contact Hannah Wilson