Euro to US Dollar Exchange Rate Trending Higher but Downside Risks Persist
The Euro to US Dollar (EUR/USD) exchange rate has been having a highly volatile week so far, as uncertainty around the US 2020 Presidential Election intensifies. Results have been tighter than markets expected, so investors are hesitant to sell the safe haven US Dollar (USD).
Uncertainty over the US Election and the coronavirus pandemic have kept pressure on EUR/USD in recent weeks. Last week saw EUR/USD tumble from the level of 1.1862 to 1.1676 – a slump of almost two cents.
This week though, movement has been far more mixed and volatile. EUR/USD has been fluctuating between lows of 1.1617 and highs of 1.1760 – over a cent and a half.
Last night, hopes for a clear US election result pushed EUR/USD higher, but as the race tightened the pair became more volatile and has been fluctuating more heavily.
At the time of writing, EUR/USD trends in the region of 1.1706 as the outcomes of the US 2020 Presidential Election are still far from clear.
Euro (EUR) Exchange Rates Jittery amid Eurozone Coronavirus and US Political Fears
The Euro (EUR) is the US Dollar’s biggest rival, and the two currencies often share a negative correlation.
As a result, the US Dollar’s appeal on market safe haven demand today has been keeping pressure on EUR/USD, making it harder for the Euro to sustain gains.
On top of this though, the Eurozone’s coronavirus situation is worsening. As the pandemic’s second wave surges across the bloc, many major economies including Germany and France are seeing fresh restriction and lockdown measures.
This is causing concerns about the Eurozone’s economy weakening considerably towards the end of the year.
In turn, the European Central Bank (ECB) has been signalling that it could introduce now monetary policy stimulus. This is only adding to Euro weakness. According to ECB Governing Council Member Paolo Hernandez:
‘It is highly likely that in December we will again add monetary stimulus to what we have today’
US Dollar (USD) Exchange Rates Seeing Resilience as Investors Keep Safe Havens Close
The US Dollar is a safe haven currency, a currency which is often appealing to markets in times of global uncertainty. As a result, it saw a surge in demand in response to developments in the US 2020 Presidential Election.
Fears that the election result could be close or contested led to a rise in safe haven demand and the US Dollar has been able to avoid bigger losses as a result.
Still, overall optimism that the US election result will eventually become clear has meant that the US Dollar’s appeal is limited as well.
On top of this, the latest US job market data has been disappointing, indicating that the US economy is struggling to handle the coronavirus pandemic.
Further Euro to US Dollar (EUR/USD) Exchange Rate Volatility Expected as Vote Counting Continues
The final results of the US 2020 Presidential Election may not be known for some time.
Counting of late mail ballots from some pivotal States could reportedly take days or even weeks to complete. As a result, the Euro to US Dollar exchange rate’s volatility is only likely to continue.
If the election becomes even tighter, higher demand for safe havens will intensify and the US Dollar will strengthen.
On the other hand, signs of a clearer result could soften safe haven demand and the US Dollar could give up recent gains.
While the US Presidential Election remains the biggest factor for EUR/USD going forward, tomorrow’s Federal Reserve policy decision could also be highly influential.
If the Fed indicates that more policy easing is possible, the Euro to US Dollar (EUR/USD) exchange rate may be more likely to sustain advances.