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EUR USD Exchange Rate Fails to Recover as Seek Out Safe Havens

  • EUR USD Drops Back to 1.17 – Fails to hold key highs above 1.18
  • ‘Safe Haven’ Demand Surges – US Dollar firms as investors avoid risks
  • EUR Forecast: German Inflation Ahead – Friday data could alter ECB bets
  • USD Forecast: US Inflation in Focus – Fed rate hike bets to be influenced

Updated 16:54 BST 10/08/2017:

EUR USD Continues to Trend Near Lows Despite Mixed US Data

The EUR USD exchange rate has been trending within a relatively narrow range between 1.1707 and 1.1765 in recent days.

Rising demand for ‘safe haven’ currencies like the US Dollar have kept the pair from recovering, but the pair holds above its lows due to a positive Euro outlook.

Thursday’s US data was mixed and didn’t give the ‘Greenback’ a notable boost.

US continuing jobless claims came in lower-than-expected at 1951k, a USD positive. However, more new jobless claims were made than expected too.

The pair could recover on Friday if geopolitical jitters cool and if Germany’s final July inflation report impresses.

[Previously updated 12:45 BST 10/08/2017]

After briefly touching a new weekly low of 1.1692 yesterday, the EUR USD exchange rate trended near those lows on Thursday morning.

EUR USD held above the level of 1.17 at the time of writing however.

Investors continued to see appeal in ‘safe haven’ assets like the US Dollar, as geopolitical tensions between the US and North Korea remained high.

Yesterday’s decent US data also slightly supported the US Dollar.

June’s US wholesale inventories results beat 0.6% forecasts and came in at 0.7%. The Q2 Nonfarm productivity projection beat expectations too, at 0.9%.

[Published 10:55 BST 09/08/2017]

The EUR USD exchange rate slipped yesterday as investors reacted to disappointing German trade data. Tensions have also risen between the US and North Korea, making traditional ‘safe haven’ currencies like the US Dollar more appealing.

Euro US Dollar began the week trading at 1.1773. After advancing above 1.18 earlier in the week, EUR USD tumbled yesterday and hit a new weekly low of 1.1720. The pair continued to trend near that level on Wednesday.

Euro (EUR) Fails to Hold Ground as German Trade Data Disappoints

While markets have an optimistic outlook on the Euro, the shared currency has slipped against the US Dollar this week partially due to a lack of strong Eurozone ecostats.

So far, this week’s German data has been generally disappointing, keeping pressure on the Euro and helping the US Dollar to advance.

Germany’s June industrial production results contracted at -1.1% month-on-month, missing forecasts of 0.2%.

Yesterday’s German trade report from June was even more disappointing. The trade surplus deepened from €22b to €22.3b as exports came in at -2.8% and imports slumped at -4.5%.

This was the biggest slump in German exports since January 2009, during the global recession. The poor data has worsened criticism that Germany’s government is not spending enough.

According to Mihir Kapadia, CEO of Sun Global Investments;

‘As economists had expected exports to dip by 0.3% and imports to rise by 0.2%, the below par performance will once again ignite criticism that Germany is destabilising the global economy (and contributing to the EU’s woes) by running such a large trade surplus.’

However, analysts generally remain confident that the Eurozone, including Germany, will see continued recovery.

Wednesday’s Eurozone data wasn’t notably influential but was optimistic. Italy’s June industrial production results beat expectations, coming in at 1.1% month-on-month and a strong 5.3% year-on-year.

‘Safe Haven’ Demand Bolsters US Dollar (USD)

Despite a lack of domestic factors supporting the US Dollar lately, the ‘Greenback’ saw stronger demand today amid rising market demand for ‘safe haven’ investments.

The US Dollar is one of the few major currencies seen as a ‘safe haven’ – a reliable asset traders can turn to in times of rising or high uncertainty.

Political concerns have worsened in recent days as the US and North Korea have ramped up threats on military action.

Analysts have noted that the escalating back and forth rhetoric between the US and North Korea has spooked markets.

However, many have argued that the effect on markets will be temporary as the chances of actual action from either nation appears low. According to Mitsuo Imaizumi, chief FX strategist from Daiwa Securities;

‘The market had been complacent for a while regarding headlines from North Korea. So it reacted when the North threatened Guam,

Few participants, however, think that North Korea would actually strike Guam at this juncture. So the impact is likely to fade eventually.’

While the US Dollar has been sturdier due to ‘safe haven’ demand, domestic factors remain weak.

Bets that the Federal Reserve will keep US interest rates frozen until 2018 are rising and are currently above 55% according to the CME FedWatch tool.

EUR USD Forecast: US Inflation in Focus This Week

If market anxiety and demand for ‘safe haven’ currencies begins to cool in the coming days, the Euro to US Dollar exchange rate is likely to recover from this week’s lows.

On the other hand, if rhetoric remains heated between the US and North Korea, the US Dollar could continue to trend strongly.

Either way, Friday’s US Consumer Price Index (CPI) report has the potential to have a big impact on EUR USD exchange rate movement.

Federal Reserve rate hike bets are low due to concerns that US inflation will not be strong enough to support more action from the Fed in the coming months.

As a result, if US inflation beats expectations in July, Fed rate hike bets will jump and the US Dollar will see a sustainable increase in demand.

Analysts estimate US inflation will improve slightly from 0% to 0.2% month-on-month, and from 1.6% to 1.8% year-on-year. Yearly core inflation is projected to remain at 1.7%.

Friday will also see the publication of this week’s biggest Eurozone data, as Germany’s final July inflation report will come in.

If German inflation beats expectations, this would cause more speculation that the European Central Bank (ECB) could take a more hawkish stance later in the year. This would strengthen Euro demand.

EUR USD Interbank Rate

At the time of writing this article, the EUR USD exchange rate trended in the region of 1.1750. The US Dollar to Euro exchange rate traded at around 0.8510.