The Eurozone economy continued to demonstrate signs of strength, boosting the Euro US Dollar exchange rate as the current account surplus widened further than forecast.
However, this failed to keep the single currency on a bullish run for long as European Central Bank (ECB) President Mario Draghi delivered another speech.
While Draghi maintained an optimistic note on the robust health of the Eurozone labour market his persistent dovishness on the subject of inflation overshadowed any positivity.
As the chief policymaker noted that inflation has yet to reach a point where it can be self-sustained the odds of the ECB leaving monetary policy loose for longer rose.
This limits the upside potential of the single currency, with strong growth considered less positive if not accompanied by a shift towards higher interest rates and an end to quantitative easing.
As long as the ECB continues to express this more cautious outlook the EUR USD exchange rate is likely to remain under some degree of pressure.
However, if there is an uptick in Monday’s German producer price index figures this may offer the Euro support in the short term.
Political Developments Influence US Dollar Exchange Rate Direction
Although the US Dollar strengthened on the back of news that the Trump administration’s tax reform bill had cleared a hurdle and passed through the House of Representatives this did not last long.
Political jitters increased once again in response to the latest developments in the investigation into Russian involvement in the Trump election campaign.
As Viraj Patel, foreign exchange strategist at ING, noted:
‘It’s difficult to see anything but the US Dollar losing out in an environment where policy and political uncertainty remains elevated. Indeed, the true test for the Tax Bill now comes in the Senate, where the GOP has a very thin lead and tricky task of appeasing both the fiscal hawks and conservatives within its more stricter budgetary framework.
‘But with Congress now in Thanksgiving recess, we see limited positive catalysts for the Dollar in the week ahead – with only a Yellen speech (not confirmed) and FOMC minutes to look out for. Fed policy remains a factor for only short-term players in the market, with the big picture of an exhausted Fed hiking cycle all but priced in the Dollar.’
Even so, the ‘Greenback’ could recover some ground this afternoon if October’s housing starts and building permits figures show a solid rebound on the month.
Reassurance that the underlying strength of the US economy persists may return the EUR USD exchange rate to a downtrend.
Current EUR USD Interbank Exchange Rates
At the time of writing, the Euro US Dollar exchange rate was making modest gains around 1.1800. Meanwhile, the US Dollar Euro exchange rate was slumped in the region of 0.8472.