Euro to US Dollar (EUR/USD) Exchange Rate Weak as Safe Haven Demand Weighs on Eurozone Optimism
The market’s cautious optimism over the Eurozone’s economic outlook hasn’t translated into bullishness for the shared currency, as the Euro to US Dollar (EUR/USD) exchange rate has seen notable losses this week. Eurozone political jitters could keep the pair weak in the coming sessions.
After modest gains last week, EUR/USD briefly jumped to touch on an interbank high of $1.12 when markets opened on Monday.
EUR/USD touched on its best levels in half a month, but has since tumbled and at the time of writing was trending near its worst levels in over a week.
This week’s Eurozone data has been relatively optimistic, and demand for the Euro (EUR) has been fairly steady. However, as US-China trade tensions worsen, the US Dollar (USD) is benefitting from market demand for safe haven currencies.
Euro (EUR) Exchange Rate Resilience Limited amid Political Concerns
While Euro (EUR) investors have been reassured by data showing that the bloc has been perhaps less moribund than feared in recent months, uncertainties about Eurozone manufacturing and other factors like politics are weighing on the Euro’s appeal.
Eurozone data was generally upbeat this week, but last month’s Eurozone manufacturing data was still disappointing, and rising US-China trade tensions are causing fresh uncertainties about how trade could impact the Eurozone’s economic outlook.
Investors are also hesitant to buy the Euro due to uncertainties ahead of next week’s EU elections, which some analysts fear could lead to a surge in populist anti-EU MEPs.
Tensions between Italy and the EU are also perceived to have deepened again due to comments from Italian Deputy Prime Minister Matteo Salvini this week. Manuel Olivieri from Credit Agricole said:
‘Italy remains one of the factors keeping Euro downside risks high’
These factors prevented the Euro from holding versus an increasingly sturdy US Dollar.
US Dollar (USD) Exchange Rates Benefit from Market Aversion to Risk
Markets have become increasingly anxious about global trade tensions in recent weeks, as trade war fears between the US and China have resumed and US-EU tensions have bubbled up again as well.
While this has concerned some US Dollar (USD) investors, who fear that the US economy will be negatively impacted by trade protectionism, the US Dollar’s status as a safe haven currency has ultimately helped to support the currency.
As a safe haven, the US Dollar often benefits in times of global market uncertainty. Its appeal as a safe haven has overshadowed concerns about the US economy and has helped it to sustain gains against its rival the Euro.
This is despite this week’s US data coming in mixed, with some key stats like retail sales and production falling short of expectations and causing Federal Reserve interest rate cut bets to persist.
Euro to US Dollar (EUR/USD) Exchange Rate Investors Anticipate Political Developments
Next week’s Eurozone and US economic calendars will be a little quieter, leaving investors to focus even more on the week’s expected political news.
Perhaps the biggest event of the week will be the EU elections on Thursday. Euro (EUR) movement may be influenced by how much influence populist parties are perceived to have gained in the elections.
Other political events to keep an eye out for in the coming days include any further news regarding tensions between Italy and the EU.
The US Dollar (USD), on the other hand, is more likely to be driven by US-China trade developments.
If investors become more anxious about global trade, safe haven currencies like the US Dollar will only become more appealing.
Upcoming data could still influence EUR/USD too, of course. Tuesday’s Eurozone consumer confidence and US existing home sales, as well as the Federal Reserve’s latest meeting minutes report, will cause EUR/USD movement earlier in the week.
Towards the end of the week, the Eurozone’s May PMI projections from Markit could join EU elections in causing significant movement in the Euro to US Dollar (EUR/USD) exchange rate.