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2 and a Half Year Best for EUR USD Exchange Rate as Market Sentiment Keeps Improving

EUR USD Exchange Rate Keeps Climbing despite Eurozone Coronavirus Cases 

Despite continued concern about the coronavirus pandemic hurting the Eurozone economy, the Euro to US Dollar (EUR/USD) exchange rate is climbing further into its best levels in years today. The safe haven US Dollar (USD) remains unappealing on improving market sentiment. 

After opening last week at the level of 1.1858, EUR/USD briefly dipped before continuing its recent bullish streak. EUR/USD ultimately closed last week higher, at the level of 1.1965. 

Since markets opened this morning, EUR/USD has only climbed higher and at the time of writing was trending near a high of 1.1996. This is the best level for EUR/USD in two and a half years, since May 2018. 

As hopes for economic recovery intensified and US Dollar investors became more concerned about the US economy, the Euro (EUR) continues to capitalise on its rival’s weakness. 

Euro (EUR) Exchange Rates Remain Appealing despite Eurozone Uncertainty 

The Euro continues to benefit from weakness in rival currencies. The Euro and US Dollar often see negative correlation, so much of the Euro’s gains lately have been in reaction to US Dollar losses. 

Investors are more optimistic about the Eurozone’s economic outlook than the US outlook, due to the Eurozone’s comparatively more swift handling of the coronavirus pandemic. 

The Euro continued to climb against the US Dollar, even as today’s German inflation report showed inflation falling more than expected. German inflation fell at –0.3% year-on-year. 

Fresh comments from European Central Bank (ECB) President Christine Lagarde also had little influence on the Euro today. Lagarde urged Eurozone nations to keep using fiscal stimulus to support the Eurozone’s hard-hit services sector. 

US Dollar (USD) Exchange Rates Continue to Tumble as Markets Look Ahead with Optimism 

After a dire 2020 for the global economy, which has endured an unprecedented global pandemic in the coronavirus Covid19, markets are looking to 2021 with optimism. 

The US Dollar is a safe haven currency. This means it has seen strong performance amid the uncertainty of this year’s pandemic. 

However, this also means that the US Dollar is tumbling as hopes for a recovery from the pandemic next year push investors to look for riskier currencies and assets. 

According to Derek Halpenny, Head of Research for Global Markets at MUFG: 

‘From a risk perspective, the equity market performances have been very, very significant and that has a been a key factor in what looks like very clear recycling out of US Dollars into non-Dollar assets, taking advantage and positioning for a more sustained pick-up in global growth,’ 

Euro to US Dollar (EUR/USD) Exchange Rate May Fall Again in December 

As the Euro to US Dollar exchange rate reaches its best levels in years, some analysts believe that the pair’s potential for further gains is limited. 

Speaking on the recent EUR/USD rally, Derek Halpenny at MUFG said: 

‘I wouldn’t expect the same in December, 

I think that scale of risk-on is unsustainable and I think now a fair degree of good news in terms of global reflation is priced for 2021.’ 

If it does turn out that the US Dollar’s losses are slowing, the US currency could rebound more easily again. In fact, the US Dollar may be especially likely to recover if upcoming US data impresses investors. 

Tomorrow will see the publication of ISM’s November US manufacturing PMI. It will give investors a clearer idea of how the US economy is performing as the coronavirus pandemic worsens in the US. 

Tomorrow’s Eurozone manufacturing PMIs, as well as inflation data from November, could also influence the Euro to US Dollar (EUR/USD) exchange rate if it surprises investors.