Fed Sentiment Fails to Boost the ‘Greenback’ (USD) as Traders Flock to Safe-Haven Euro (EUR) on Black Monday
Although Federal Reserve Bank of Atlanta President Dennis Lockhart made hawkish comments, demonstrating confidence in the probability of an interest rate rise coming before the end of the year, his opinion was somewhat outweighed by the global market panic of Black Monday. With the Dow Jones having experienced its biggest daily fall since 2009 traders were less inclined to favour the ‘Buck’ (USD), which pushed the EUR/USD exchange rate up a fresh seven-month high at 1.1701. This morning, however, the pairing has retreated somewhat to trend around 1.1551.
This morning saw the EUR/USD exchange rate climb to a seven-month high on the back of risk aversion, global economic concerns and the declined chance of a Fed interest rate increase in the coming months.
Threat of Greek Elections Failed to Undermine Euro (EUR) as the ‘Buck’ (USD) Slipped on US Manufacturing PMI
Although last week saw a successful conclusion to the third bailout deal of Greece it was not long before the Hellenic nation returned to a state of uncertainty, as Prime Minister Alexis Tsipras stepped down to trigger fresh September elections. However, as twenty-five of the most vocal dissenters in his own party broke away, the chances of Tsipras returning to government with the full backing of a more cooperative coalition were considered good enough to avoid any major hit to the single currency (EUR). This relatively optimistic reaction was helped along by a raft of improved Eurozone PMI figures on Friday, with the German Manufacturing PMI in particular rising well above expectations at 53.2 rather than the forecast 51.6. Signs that the currency bloc’s major economy is not following the global downtrend boosted Euro sentiment to send the EUR/USD exchange rate steadily climbing throughout the day to reach a peak of 1.1389.
The ‘Greenback’ (USD), meanwhile, had a significantly less positive end to the week, as the continuing instability of the Chinese stock market and a slumping Yuan (CNY) raised further concerns over the global economy. With Wall Street suffering substantial losses, the situation was only compounded by a disappointing US Manufacturing PMI. Posting at 52.9 rather than 53.8, this figure seems to indicate that the domestic sector is beginning to experience contraction, a bad omen for those hoping to see a Fed interest rate hike in September.
Market Turmoil Weighs on the US Dollar (USD) Today, EUR/USD Benefits from Trading Risk Aversion to hit Best Rate
While both the US and the Eurozone are relatively lacking in domestic economic releases today, the primary driving force are developments in the Chinese situation and the condition of the global stock markets. A combination of trader risk aversion and the perception of a decreased chance for a September Fed interest rate take-off are currently driving investors towards the Euro as the appeal of the ‘Buck’ wanes. Consequently the early hours of the morning saw the EUR/USD pairing jump to a seven-month high of 1.1490.
EUR/USD Exchange Rate Forecast: Single Currency Likely to Remain Safe-Haven of Choice
Within the next day there will be chances for the ‘Greenback’ to rally, however, as Federal Reserve Bank of Atlanta President Dennis Lockhart is due to speak and possibly shed light on the remaining possibility of an imminent Fed rate hike. Tomorrow’s US Consumer Confidence index for August, Services PMI and New Home Sales could all offer support to the bearish currency should any of these prove sufficiently better than expectations.
Meanwhile, the common currency stands to remain dominant, unless the European stock markets equally begin to fall victim to the contagious global panic over shares. The results of the German IFO surveys and their assessment of the current business climate of the Eurozone’s prime economy could ultimately strengthen the Euro further if the outlook is declared to be positive.
Current EUR, USD Exchange Rates
At time of writing the Euro to US Dollar (EUR/USD) exchange rate is continuing to trend strongly at 1.1484, with the US Dollar to Euro (USD/EUR) pairing in a downtrend in the region of 0.8705.