Eurozone data continued to prove positive for the Euro US Dollar exchange rate, offering the single currency further support as safe-haven demand surged. Meanwhile, EUR GBP was stuck around opening levels.
- Uncertainty over outcome of US election shored up Euro US Dollar exchange rate – Markets rushed to price in higher odds of Trump victory
- Pound struggled to shake off Brexit worries – UK PMIs offered mixed view of domestic economy
- Fed policy meeting forecast to provoke further US Dollar volatility – Odds of 2016 rate hike could be boosted by hawkish policymaker outlook
- Lower Eurozone unemployment rate could increase Euro demand – Domestic data strength likely to support EUR exchange rates
With the outcome of the US presidential election looking decidedly uncertain investors have been inclined to pile out of the ‘Greenback’. The Pound has been volatile on the back of mixed UK PMIs, with investors also wary ahead of the High Court’s ruling on whether the Prime Minister can activate Article 50 without a vote in Parliament.
Unexpected Drop in German Unemployment Shored up EUR Exchange Rates
With risk appetite on the decline the Euro (EUR) gained some strength, benefitting particularly from the weakness of the US Dollar (USD). Domestic data also proved encouraging on Wednesday, with the latest German labour market data bettering expectations. The unemployment rate showed a surprise decrease from 6.1% to 6.0%, something that points towards more resilient conditions within the Eurozone’s powerhouse economy. Even so, this stronger showing is unlikely to reduce the likelihood of the European Central Bank (ECB) extending its quantitative easing program before the end of the year, limiting the strength of EUR exchange rates.
If Thursday’s Eurozone unemployment rate shows a similar dip then the single currency could be prompted to trend higher across the board, in spite of ECB easing concerns. Also of note will be the central bank’s latest Economic Bulletin, which could be seen to increase the odds of an imminent return to monetary loosening. Even so, if US election jitters continue to weigh on market sentiment then the Euro could remain on a stronger footing.
Mixed UK PMIs Prompted Pound Sterling (GBP) Exchange Rate Volatility
Despite Bank of England (BoE) Governor Mark Carney having extended his term until June 2019 the appeal of the Pound (GBP) remained generally muted. There was some disappointment when the UK Manufacturing PMI for October fell short of forecast, dipping from 55.5 to 54.7, signalling a loss of growth momentum. This was not seen to bode well for the outlook of the domestic economy at the start of the fourth quarter, doing little to ease the latest round of Brexit-based market anxiety.
However, investors were given some cause for optimism when the corresponding Construction PMI was found to have bettered expectations. This prompted the Euro Pound (EUR GBP) exchange rate to trend lower, despite the more limited importance of the construction sector to the overall economy. The report was not entirely positive, though, with Tim Moore, Senior Economist at IHS Markit, noting:
‘While business activity has picked up since the third quarter, the recent phase of new order growth has been the weakest for three-and-a-half years. Survey respondents noted that Brexit-related uncertainty and concerns about the UK economic outlook had held back investment spending.’
A stronger boost for the Pound could come on the back of the October Services PMI, given that this sector accounts for the vast majority of domestic economic activity. Should the service sector have remained resilient and continued to shake off Brexit uncertainty then the EUR GBP exchange rate could weaken.
Election Worries Forecast to Boost Euro US Dollar Exchange Rate Higher
Market confidence in the US Dollar tanked on Wednesday morning, with investors spooked by an ABC News/Washington Post poll which gave Donald Trump a one point lead over his Democratic rival. As Hilary Clinton’s ratings have suffered in the wake of the FBI’s announcement that it is making a further investigation into the email scandal, jitters surrounding the election have increased. This has seen the ‘Greenback’ soften markedly, particularly against its safe-haven rivals, which could continue to boost the Euro US Dollar (EUR USD) exchange rate throughout the week.
The appeal of the US Dollar could be boosted, however, if the Federal Open Market Committee (FOMC) signals a willingness to raise interest rates in December. More hawkish commentary from policymakers would increase the odds of a 2016 rate hike, even if a move at the November meeting does not seem to be a possibility. Should domestic data also continue to offer signs of robustness then the EUR USD exchange rate may struggle to hold onto its upward momentum, even if political risk is set to remain the key driver of the ‘Greenback’ in the near term.
Current Interbank Exchange Rates
At the time of writing, the Euro Pound (EUR GBP) exchange rate was trending narrowly at 0.90, while the Euro US Dollar (EUR USD) pairing was making gains in the region of 1.10.