EUR/USD Exchange Rate Subdued on German Political Uncertainty
The Euro to US Dollar (EUR/USD) exchange rate is stuck trading at a four-month low this morning as German politics were rocked by the sudden resignation of Angela Merkel’s heir apparent.
At the time of writing EUR/USD exchange rate is trading at around $1.0914, virtually unchanged from this morning’s opening rate.
Euro (EUR) Struggles as Merkel’s CDU Dealt Heavy Blow by Resignation of Leader
The Euro (EUR) remains in the doldrums this morning as a growing political crisis in Germany has unsettled EUR investors.
This follows the shock announcement by Annegret Kramp-Karrenbauer that she would be resigning as leader of the Germany’s ruling Christian Democrat Party (CDU).
Merkel's former protege unexpectedly throws in the towel, leaving the race to lead Europe’s largest economy wide open https://t.co/E8KP4YHIzp
— Bloomberg Politics (@bpolitics) February 10, 2020
Kramp-Karrenbauer was widely seen as the most likely candidate to succeed Chancellor Angela Merkel and continue her legacy when she steps down in 2021.
Kramp-Karrenbauer’s decision comes after members of the CDU defied the party leadership to strike a deal with the far-right Alternative for Germany (AfD) party to elect liberal candidate Thomas Kemmerich in the eastern state of Thuringia.
Collaboration with the AfD is seen as unacceptable by mainstream parties in Germany due to its extreme views on immigration and freedom of speech.
Kramp-Karrenbauer’s resignation now leaves a huge question mark over who could possibly succeed Merkel, who after 15 years as Chancellor is seen as irreplaceable by many.
US Dollar (USD) Steady Ahead of Powell’s Testimony
At the same time, the US Dollar (USD) is in a holding position this morning as markets brace for Federal Reserve Chair Jerome Powell’s semi-annual appearance before Congress.
Speaking before the House Financial Services Committee, Powell will give deliver his latest assessment of the US economy and be grilled on the Fed’s monetary policy.
Analysts suspect a portion of his testimony to be dedicated to discussing the coronavirus outbreak in China and its potential impact on the US economy.
However, they aren’t expecting Powell to drop any bombshells this afternoon and as such the US Dollar is likely to remain mostly steady through today’s session.
EUR/USD Exchange Rate Forecast: Slump in Eurozone Factory Activity to Weigh on the Euro?
Looking ahead, the Euro US Dollar (EUR/USD) exchange rate may trend even lower in the mid-week with the publication of the Eurozone’s latest industrial production figures.
With Germany reporting last week that domestic industrial production slumped to a new decade low in December, EUR investors are expecting a similarly gloomy reading from the broader Eurozone, with a market consensus that output will have contracted by 1.6% at the end of 2019.
Meanwhile, the publication of the US consumer price index (CPI) will be main focus for USD investors in the second half of the week.
The CPI figures are likely to strengthen the US Dollar if they reveal that US inflation ticked higher again in January as it reduces the odds the Federal Reserve may consider cutting rates again in 2020.