EUR/USD Exchange Rate Recovers despite USD Strength
The Euro to US Dollar (EUR/USD) exchange rate gaining ground this afternoon after trading sideways at a near one-month low for most of the session.
A risk-off market mood has been driving demand in the safe-haven ‘Greenback’ but EUR/USD has now reversed the trend, trading at $1.17339 – about 0.15% up from today’s opening levels – after the US eased restrictions on European travellers.
US Dollar (USD) Firms amid Downbeat Market Mood
The US Dollar (USD) has enjoyed broad support today as anxious investors flocked to the safe-haven currency.
A number of factors are contributing to the current bearish market mood, including the worsening gas crunch in Europe and stagflation fears, with soaring inflation paired with signs of a global economic slowdown.
Political uncertainty is also causing some hesitancy among investors, with Canada’s federal election underway today and Germany’s coming on Sunday.
However the single biggest factor spooking markets today is the ongoing Evergrande debt crisis in China. The country’s second-largest property developer warned last month that it was at risk of defaulting on its debt, causing the company’s shares to tumble.
The property giant owes over $300bn and faces a crucial interest payment deadline on Thursday, which many fear it will be unable to pay.
The unfolding crisis has triggered a selloff in the Chinese real estate sector, spilling into commodities and financial markets as well, with investors concerned that a pullback in the Chinese property market will hit banks and dent demand for materials.
Stocks in Europe and the US are also down today, as the crisis sent ripples across global markets.
As such, demand for the safe-haven US Dollar has strengthened, with spooked investors looking for safer assets.
Euro (EUR) Rallies on Travel Industry Optimism
The Euro (EUR) was initially subdued today, trading in a narrow range against the US Dollar as the currencies’ negative correlation put pressure on EUR.
The ongoing energy crisis may also have been weighing on the single currency, with a shortage of gas and soaring energy costs threatening to dent the Eurozone’s economic recovery and halt factory production.
However, the Euro has managed to shrug off these headwinds and is currently climbing against the US Dollar.
The upside may have been prompted by news that the US will lift travel restrictions on fully vaccinated travellers from the UK and Europe.
The decision comes 18 months after former US president Donald Trump imposed a blanket ban, with many commentators criticising the Biden administration for not lifting the ban sooner.
In response, European travel stocks are on the rise. This optimism in the European travel industry may be lifting the Euro from today’s lows.
EUR/USD Forecast: Risk Aversion Could Keep EUR/USD Under Pressure
Looking ahead to tomorrow’s session, a lack of major market-moving data releases on both sides leaves the EUR/USD pair open to market mood and domestic news.
If the Evergrande crisis continues to spook investors, EUR/USD could remain under pressure.
Yet it remains to be seen just how far the Euro can extend its current upside. There’s a chance we may see the single currency continue its current gains into tomorrow’s session.