Euro US Dollar Exchange Rate Fluctuates as Midterms Take Spotlight
The Euro US Dollar (EUR/USD) exchange rate is trading erratically today as the US midterm elections throw economic uncertainty into the mix.
At time of writing the EUR/USD exchange rate is trading around $0.9997, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Undermined by Potential Political Volatility
Meanwhile, the US Dollar is braced for the outcomes of the midterm elections as President Joe Biden hopes to maintain control of Congress.
Today, voters head to the polls to decide control of the lower chamber of Congress, the House of Representatives. Political instability could be in the offing if Republicans seize control. Usually seen as an indication of the standing president’s popularity halfway through their term, but expectations of Democrats losing the House could spell trouble for Biden. Republican control of either the Congress or the Senate could see Biden run into difficulty passing new legislation, and even just to govern.
Damien Boey, Chief Macro Strategist at Barrenjoey in Sydney explained:
‘If we get a gridlock outcome or Republican sweep, it won’t be so easy to get fiscal stimulus through next year, which means then that (Federal Reserve Chair Jerome) Powell can afford to take the foot off the interest rate hike accelerator.’
Meanwhile, further hampering the ‘Greenback’ is the continuing rise of US Treasury yields, highlighting the shaky monetary policy outlook in the US economy.
Euro (EUR) Modestly Inspired by Hawkish ECB Comments
The Euro is struggling to find a clear direction today despite an improvement in retail sales and unusually hawkish European Central Bank (ECB) commentary.
Better-than-expected retail sales for the Eurozone gave a modest boost to the shared currency. Retail sales grew 0.4% MoM compared to September following three months of declining or stagnating sales. However, with inflationary pressures still rampant and the energy crisis keeping consumers cautious, retail sales fell YoY by 0.6%.
Lending some further support the Euro is the ECB hinting at further interest rate hikes. Andrea Enria, Chair of the ECB’s Supervisory Board, said that the Euro area’s banking sector would remain resilient to any further rate hikes. ECB governing member Joachim Nagel also reassured EUR investors that further large rate hikes are necessary.
Euro US Dollar Forecast: Midterm Results to Sour the Greenback?
Looking ahead, the Euro US Dollar exchange rate could see further movement when the results start rolling in for the midterm elections. A swing to Republican control could provide turmoil in the US political landscape, and a downbeat US Dollar.
Elsewhere, the Euro could see fluctuations if the ECB non-monetary policy meeting would in fact provide some hints to the central bank’s movements going forward.