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Coronavirus Hopes and Eurozone Fiscal Stimulus Buoy Euro to US Dollar Exchange Rate

Euro to US Dollar Exchange Rate up as Markets More Willing to Take Risks 

As Eurozone officials finally started to show progress on broad fiscal stimulus plans, the Euro to US Dollar (EUR/USD) exchange rate was able to more easily benefit from market sentiment today. The US Dollar (USD) is weaker as investors sell safe haven currencies. 

Following weeks of shockingly huge movement, EUR/USD movement is a little lighter this week. EUR/USD plummeted over three cents last week at closed the week at the level of 1.0803. 

EUR/USD is showing some recovery today. At the time of writing, EUR/USD is over half a cent higher in the region of 1.0876. 

The pair could be in for even further gains if the market outlook continues to improve though. If investors are impressed with EU fiscal stimulus measures the Euro’s (EUR) support will strengthen. Meanwhile, risk-sentiment remains sensitive to the overall coronavirus pandemic situation. 

Euro (EUR) Exchange Rates Buoyed as Eurogroup Expected to Make Partial Fiscal Stimulus Agreement 

Market demand for the Euro has been mixed in recent weeks. The currency has struggled to benefit much from safe haven demand due to concerns that the EU was not doing enough on EU-wide fiscal stimulus. 

Concerns about disagreements between Eurozone nations over ‘coronabonds’ weighed on the Euro last week. This made it easier for EUR/USD to fall. 

However, while nations remain split over the key issue of proposed ‘coronabonds’, the Eurogroup is now widely expected to reach agreement on some stimulus during its meeting today. 

It was reported today that Eurozone finance ministers look set to agree on measures of over half a trillion Euros. According to Charles Michel, Chairman of EU Leaders: 

‘There’s a lot of room for solidarity within the existing instruments and institutions. We have to exploit these tools fully and remain open to doing more. A strong package is in the making,’ 

This news helped the Euro to climb a little against a tumbling US Dollar today. 

US Dollar (USD) Exchange Rates Tumble as Markets Head for Riskier Investments 

This week’s improved market sentiment is continuing today. With investors becoming hopeful that the coronavirus pandemic could be slowing in major economies, they are more willing to take risks again. 

As a result, the appeal of safe havens that have benefitted most strongly from the coronavirus panic has softened. This has caused the US Dollar to tumble against many major currencies this week so far. 

Analysts are saying the US Dollar’s losses are largely a correction of the huge gains it saw in response to safe haven demand. According to Kenneth Broux, FX Strategist at Societe Generale: 

‘We need some time for this to settle … I think what we are seeing is a bit of mean reversion – a correction from exaggerated selling. We are in that process’ 

On top of shifts in market sentiment, the US Dollar’s appeal is also limited by the recent weakness in the US job market. Investors are still anxious following last week’s shockingly poor US job stats. 

Euro to US Dollar (EUR/USD) Exchange Rate Could Weaken Again if Sentiment Worsens 

For now, Euro to US Dollar (EUR/USD) exchange rate investors are eagerly awaiting more solid news from the Eurogroup’s meeting. 

If the Eurogroup agrees to some coordinated Eurozone fiscal stimulus as expected, the Euro could see more steady movement. Market demand for the Euro could be even stronger if the meeting is more positive than expected on disagreements regarding ‘coronabonds’. 

However, even if the Euro finds some fresh support on Eurozone fiscal stimulus news, EUR/USD could still weaken soon. The US Dollar’s movement in reaction to market risk-sentiment remains the most influential cause of EUR/USD movement. 

If the coronavirus pandemic shows fresh signs of a worsening spread, investors may rush to safe havens again. This could keep pressure on the Euro to US Dollar (EUR/USD) exchange rate going forward.