Euro US Dollar (EUR/USD) Exchange Rate Slumps as Investors Scramble for USD Amid Coronavirus Fears
The Euro US Dollar (EUR/USD) exchange rate slumped on Tuesday as coronavirus fears continued to dominate markets. This left the pairing -1.5% lower and trading at around $1.1002.
The US Dollar rose on Tuesday, recouping yesterday’s losses as nervous traders flocked to the safe-haven currency.
Anxious investors stuck with the most liquid currency as sentiment remained fragile.
Market liquidity remained tight and investors were cautious after coordinated moves by central banks failed to calm the anxiety over the coronavirus pandemic.
However, some analysts have argued the hasty moves from central banks have backfired. Commenting on this, Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank noted:
‘Central banks are pressing the gas pedal to the floor. But the car is bogged down in a quagmire that is called coronavirus, so it won’t move forward.
‘Until the outbreak stops, for investors, it is time for patience.’
Added to this, many scrambled for Dollars as the economic outlook continues to get darker by the day.
Commenting on this, ING analysts said:
‘The Dollar can hold onto its gains as markets understandably remain fragile, but when the dust settles, we think the Dollar will end up a little lower.’
Euro (EUR) Slumps, Germany on ‘Red Alert’
The single currency plummeted on Tuesday, dragged lower by a disappointing German ZEW Economic Sentiment Index.
March’s sentiment in the bloc’s largest economy plummeted by 58.2 points to -49.5.
This was the lowest level sentiment has fallen since December 2011, and the largest fall since December 1991 as coronavirus worries gripped markets.
Commenting on the data, ZEW President Achim Wambach said the decline was to be expected and added:
‘The economy is on red alert. The financial market experts currently expect to see a decline in real gross domestic product in the first quarter, while also considering a further drop in the second quarter to be very likely. For the whole of 2020, the majority of experts currently expect a decline in real GDP growth of approximately one percentage point as a result of the corona pandemic.’
Added to this, Pantheon Macroeconomics wrote:
‘The slide is consistent with the dramatic shift in sentiment and prices in relation to the Covid-19 outbreak, and we doubt it will improve much anytime soon.
‘The only reason to keep an eye on these data at this point is the extent to which they provide a lead on the March economic surveys, which are set to be unrelentingly terrible.’
Euro US Dollar Outlook: Will the Pairing Continue to Plummet?
Looking ahead, the US Dollar (USD) could continue to rise against the Euro (EUR) if investors continue to flock to safer assets as coronavirus fears increase.
However, the ‘Greenback’ could slide slightly this afternoon if US retail sales disappoint.
Meanwhile, if Eurozone inflation data disappoints it could drag the single currency lower.
If February’s final inflation rate for the bloc slumps it will send the Euro US Dollar (EUR/USD) exchange rate lower.