Euro US Dollar (EUR/USD) Exchange Rate Rises on Hopes for an Economic Recovery
The Euro US Dollar (EUR/USD) exchange rate edged 0.3% higher this morning, leaving the pairing trading at around $1.1103.
The ‘Greenback’ slipped against the single currency this morning, although these losses could be quickly reversed as US-China tensions grow.
Investor focus has shifted to US President Donald Trump’s response to Beijing’s passage of a national security law for Hong Kong. This is likely to spark a diplomatic row between the United States and China, and send traders flocking to safety.
The US Dollar was on course for a weekly loss against its major rivals, as risk appetite was boosted by the lifting of coronavirus lockdowns and Europe’s stimulus plan.
However, USD could make gains during Friday’s session if tensions between the world’s largest economies increase.
According to Minori Uchida, head of global market research at MUFG Bank:
‘At the moment, hopes for economic recovery are strong, but I expect this to gradually fade to increased concern about the US-China relationship
‘When that happens, there will be more risk-off trades, which supports buying of both the Dollar and the Yen.’
Euro (EUR) Rises on EU’s €750 Billion Coronavirus Recovery Fund
Meanwhile, the single currency was on its way for a second weekly gain against the Dollar, buoyed by the European Union’s announcement.
Optimism increased after the EU announced a €750 billion coronavirus recovery fund this week.
However, data this morning from official stats agency, INSEE showed the bloc’s second largest economy shrank by -5.3% in the first quarter of 2020.
While the economy contracted by less than expected in Q1, France remained in a deep recession due to the coronavirus pandemic.
This was France’s deepest quarterly slump since 1968, which likely limited EUR gains this morning.
The country’s economy entered a technical recession in the final quarter of 2019 as the government put the country under one of the most strict lockdowns in Europe.
While the restrictions were gradually lifted from 11 May, meaning economic activity is increasing, INSEE has estimated the economy may contract by 20% in the second quarter.
Euro US Dollar Outlook: US-China Relations in Focus
Looking ahead to this afternoon, the US Dollar (USD) could edge lower against the Euro (EUR) following the release of US personal spending and personal income data.
If April’s personal spending and income both decline at a rapid pace due to the coronavirus, the Dollar could edge lower.
However, the single currency could give up some of this week’s gains if tensions between the US and China increase.
If relations between Beijing and Washington deteriorate further, it will leave the Euro US Dollar (EUR/USD) exchange rate largely flat.