- EUR USD Slips to 1.1713 – USD EUR Climbs to 0.8533
- German Coalition Talks Fall Apart – Euro Exchange Rates Tumble
- US Leading Index Rebounds – Growth Signalled in the US
The EUR USD exchange rate fell behind today as markets digested news that coalition talks in Germany have failed and that the US leading index has rebounded to signal significant economic growth.
Euro (EUR) Exchange Rates Fall as Merkel Fails to Secure a Coalition
Market demand for the Euro (EUR) fell today on news that Germany’s Free Democratic Party (FDP) has walked away from the negotiation table, leaving Chancellor Angela Merkel and her Christian Democratic Union (CDU) devoid of a coalition and Germany without leadership some two months after the election.
With the potential for a ‘Jamaica’ coalition curbed by seemingly irreconcilable differences between the Green Party and the Free Democrats (FDP) and a renewed alliance with the Social Democrats (SPD) still off of the table, many are wondering if Germany will be forced to engage in a snap election, or if Merkel will continue with as a minority government.
German President Frank-Walter Steinmeier has urged parties to keep talks open regardless, making clear that a snap election is not the most desired of options.
The investor response to this news was understandably negative, with markets anxious that delays in forming a secure government will defer progress in important political matters and result in economic uncertainty for the bloc’s largest economy.
US Leading Index Rebounds, USD Exchange Rates Bolstered
A key economic indicator doubled its expectations for the US economy in October, rebounding from the decline exhibited in September.
October’s leading index rose by 1.2%, double the 0.6% increase that was forecast and optimistically suggesting that solid growth for the US economy will continue throughout the holiday season into 2018.
The leading index is a closely watched indicator for the health of the US economy, making its solid performance notable amongst predictions that US GDP will continue to rise along with core inflation levels.
This news bolstered demand for the US Dollar (USD), with investors already excited for the possibility of a rate hike in December and the Republican tax reform plan – also expected to arrive before the end of the year.
EUR USD Forecast: Optimism for US Data Ahead
Whilst today is a sparse data day for the ‘Greenback’, tomorrow will feature a run of notable releases ranging from US initial jobless claims, to durable goods orders, the University of Michigan sentiment readings and the Federal Open Market Committee (FOMC) meeting minutes.
Durable goods orders in the US are forecast to increase from 0.2% to 0.4% in October, with the University of Michigan sentiment reading also expected to rise, this time from 97.8 to 98.
Markets will also be studying the FOMC meeting minutes for any indication of what to expect at the December rate meeting, with markets currently pricing in a third and final rate hike for 2017.
If the minutes reaffirm this perspective then the EUR USD exchange rate will come under increased pressure.
In other news, Fed Chairman Janet Yellen is due to speak this evening at the Stern Business School, though it is unlikely that she will use the occasion to reveal anything new regarding monetary policy.
For the Euro, markets are predominantly waiting for Thursday’s run of releases, including November’s GDP figures and a range of PMI readings.
If Merkel’s CDU continues to fail to successfully secure a coalition deal, however, then markets will be hesitant to invest too steeply into the single currency – something that might mute the results of otherwise positive data releases.