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EUR USD Exchange Rate Plummets on Speculation Italy May Leave the Eurozone

  • EUR USD Tumbles Following Italy Rumours – German economist predicts Italy could leave the Euro.
  • Traders Upbeat about new US President – US Dollar rises as Trump’s inauguration nears.
  • German Unemployment Falls – However, not by enough to for the Euro to recover.
  • German CPI Data Ahead – EUR may recover if inflation rises as expected.

The Euro US Dollar (EUR USD) exchange rate nosedived yesterday as a leading German economist suggested that Italy may leave the Euro.

Euro US Dollar (EUR USD) Pressured by Italy Speculation

The Euro has fallen over a cent so far this week following suggestions from Clemens Fuest of the Institute for Economic Research.

The leading German economist believes that that Italian living standards have seen no notable rise since 2000 due to the constraints of the single currency, as he told German daily Tagesspiegel;

‘The standard of living in Italy is at the same level as in 2000. If that does not change, the Italians will at some stage say: “We don’t want this euro zone any more”’.

This comes as the Italian government faces the challenges of bailing out its third largest bank, Monte dei Paschi, amid growing concerns that its €20bn bailout fund may not be enough to turn around its struggling banking sector.

This has also lead Fuest to reject any notion that Germany should approve a rescue package for Italy as he believes it will place a burden on German taxpayers ‘the size of which it does not know and cannot control’.

Trump Optimism Strengthens US Dollar (USD)

The US Dollar continues to be bolstered by market optimism towards Donald Trump as traders predict that his policies could help to fuel growth in the US economy.

With his inauguration just a couple of weeks away, investors are increasing upbeat that the incoming President’s ambitious infrastructure plans could lead to an improved job market and cause a real rise in wages.

His presidency is also seen as increasing the odds of interest rate rises later this year following the Federal Reserve’s hawkish predictions that there could be up to three rate hikes in 2017 after voting for a rise last month.

German Unemployment Data Unable to Provide Rally for Euro (EUR)

German Unemployment fell by around 17,000 in December, improving on a drop of 6,000 the month before and beating expectations that it would only fall by 5000. This was the largest improvement in German joblessness since January of last year.

However, despite the fall the German Unemployment Rate remained unchanged at a record low of 6%, which was not sufficient enough to cause any notable rise in the Euro.

EUR USD Exchange Rate Forecast: German CPI Data Due Later Today

The EUR USD exchange rate may rally later today with the release of German’s latest Consumer Price Index as investors predict that German inflation will have jumped from 0.8% to 1.4% in December, which may also be reflected by a rise the overall Eurozone CPI report tomorrow.

Meanwhile the ‘Greenback’ may renew its pressure later in the afternoon as the US releases its latest manufacturing figures, which are expected to have risen from 53.2 to 53.7 in December.

Looking further ahead it is highly likely that the Euro will meet parity with the US Dollar in the near future, with Trump’s inauguration potentially being the final straw later this month if markets remain optimistic about his first term in office.

Current Interbank Exchange Rates

At the time of writing the EUR/USD exchange rate was trending around 1.04 and the USD/EUR exchange rate was trending around 0.96.