EUR/USD Exchange Rate Rises as Italy Reaches Budget Agreement with EC
The Euro US Dollar (EUR/USD) exchange rate is up today, and is currently trading at $1.1405 with reports that Italy had reached an informal agreement with the European Commission (EC) over its controversial budget yesterday.
The US Dollar (USD), meanwhile, was strengthened after yesterday’s publication of the building permits figures for November which showed a better-than-expected increase.
Following these was the release of housing starts figures for November, which also showed an increase at 1.256M against last month’s 1.217M.
The recent political upheavals in Europe have left the Euro (EUR) volatile, however, with fears that France’s recent capitulation on a number of tax measures – after the gilets jaunes protests – may be mimicked by Italy.
Euro US Dollar (EUR/USD) Exchange Rate Up on Italy’s ‘Great Satisfaction’ Over Budget
Euro (EUR) traders still remain cautious over Italy’s budget revision despite recent signs of a compromise, with Deputy Prime Minister Matteo Salvini commenting yesterday that the informal agreement between the EC and Italy had produced ‘great satisfaction for the result achieved’.
However, Italy’s Prime Minister Giuseppe Conte warned:
‘[I]t is necessary to wait for the procedure to be completed in order to consider the negotiation definitively concluded.’
Brexit is still weakening the Euro (EUR) with markets increasingly concerned that the House of Commons will fail to reach a consensus over Theresa May’s withdrawal agreement, which would also unsettle the Eurozone.
The Euro (EUR) was also weakened today by Germany’s Producer Price Index which slowed to 0.1% against last month’s 0.3%.
USD/EUR Exchange Rate Down over Worries of ‘Dovish’ Interest Rate Hike
The US Dollar (USD) was strengthened yesterday after trade tensions with China showed signs of easing as Chinese importers began buying US soybeans, with over 1.5 million tonnes being shipped from January to March.
However some ‘Greenback’ investors have remained cautious, with China’s President Xi Jinping commenting yesterday that ‘no-one is in a position to dictate to the Chinese people what should or should not be done,’ which has been interpreted as a jab at US President Donald Trump.
Today, meanwhile, will see the Federal Reserve’s interest rate decision, which is expected to deliver a 25 basis point hike.
Nevertheless, the forward guidance is expected to be dovish after criticism from President Trump and comments from Chair of the Federal Reserve, Jerome Powell, who hinted that future hikes would be data-dependent.
Donald Trump urged Powell to ‘feel the market’ ahead of the Fed’s decision today:
I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!
— Donald J. Trump (@realDonaldTrump) December 18, 2018
EUR/USD Outlook: Italy’s Budget and US-China Trade Relations Remain in Focus
The EUR/USD exchange rate looks set to be motivated by political factors this week, with EUR investors remaining skittish over Italy’s budget after France’s recent suggestions that it will break fiscal rules following pressure from ‘yellow vest’ protests.
Meanwhile USD investors will be keeping a close eye on US and China trade relations, with any signs of things flaring up again likely strengthening the ‘Greenback’.
Later on today will also see the release of US existing home sales for November which are expected to decrease.
Looking ahead to tomorrow, the US will see the publication of unemployment figures for December, with any signs of a decrease potentially bolstering USD.
EUR investors, meanwhile, will be looking ahead to Friday’s release of Germany’s Gfk Consumer Confidence Survey figures which are expected to remain static.
Other than these, the EUR/USD exchange rate is likely to be dictated by global risk sentiment ahead of the festive season with fewer data releases on the horizon.