Investors have maintained a more optimistic view of the unexpected Trump victory at the start of the new week, weighing down the EUR USD exchange rate as worries over the rise of populism spread.
- Market volatility calmed further after surprise Trump election – EUR USD exchange rate gave up early gains
- Political risk weighs on Euro outlook – Investors concerned by possibility of upsets from Eurozone voters
- German GDP forecast to weaken in third quarter – Single currency expected to soften in response
- Rising odds of December Fed rate hike could push US Dollar higher – Prospect of monetary tightening to boost USD demand
With Eurozone data expected to prove mixed at best the appeal of the Euro is likely to remain limited in coming days.
US Dollar (USD) Remained on Bullish Run Despite Shock Election Results
Markets have continued to adjust well to the shock victory of Donald Trump in the US presidential election, prompting the Euro US Dollar (EUR USD) exchange rate to extend its downtrend. While Trump’s promises of increased fiscal stimulus and infrastructure investment offset some of the concerns over his election the strength of the US Dollar (USD) nevertheless remains fragile. As the political fallout continues to unfold the ‘Greenback’ may struggle to hold onto its recent gains.
On the other hand, the shakeup in the US has led to increased worries over the outlook of the Eurozone. The rise of populism could undermine the integrity of the currency union, leading investors to worry over the result of the upcoming Italian referendum. Should political risks within the Eurozone continue to mount then the EUR USD exchange rate can be expected to remain on a weaker footing.
Weaker German GDP Predicted to Dent Euro (EUR) Exchange Rates
Further downside pressure for the Euro could come on the back of the third quarter German Gross Domestic Product report, which is expected to show that growth was more limited on the year. Forecasts point towards the figure slipping from 3.1% to 1.8%, a significant loss in momentum which could dent confidence in the Eurozone’s powerhouse economy. Given that the currency union remains largely reliant on growth from Germany a weaker showing here would give investors fresh reason to sell out of the single currency, driving the EUR USD exchange rate lower.
However, expectations are a little more positive for November’s ZEW Economic Sentiment Surveys, which are predicted to show a fresh uptick in confidence for both Germany and the wider Eurozone. This could offer the Euro a more substantial rallying point, with greater economic optimism likely to somewhat offset political worries in the near term. Should the outlook of the Eurozone remain bullish then the single currency could see an increased level of demand.
EUR USD Exchange Rate Forecast to Remain Volatile on Trump Presidency Speculation
Domestic political developments will remain the major influence on the US Dollar for the foreseeable future, with any greater return to the hard-line, divisive rhetoric of Trump’s election campaign likely to diminish market confidence. Any fresh commentary on the economy from the President-Elect looks set to eclipse the latest US ecostats, particularly with the direction of the world’s largest economy set to shift dramatically in coming months.
Nevertheless, the odds for an imminent Federal Reserve interest rate hike have rebounded since election night as the shock of the result faded. Given the nature of Trump’s promises inflationary pressure is expected to rise sharply, something viewed favourably by the Fed after years of weaker inflation. Hopes of a faster return to the monetary tightening cycle are US Dollar positive, with researchers at Danske Bank noting:
‘We are also looking forward to hearing from Fed Chair Janet Yellen on Thursday following the Trump win. We expect the Fed to hike rates in December and twice next year to offset partly the expected fiscal boost from President-Elect Donald Trump.’
Current Interbank Exchange Rates
At the time of writing, the Euro US Dollar (EUR USD) exchange rate was slumped in the region of 1.07, while the US Dollar Euro (USD EUR) pairing was making gains around 0.92.