Euro to US Dollar (EUR/USD) Exchange Rate Rises as Korea News Boosts Risk-Sentiment
Updated 16:43 GMT 06/03/2018:
On Tuesday afternoon the Euro to US Dollar (EUR/USD) saw a surge in demand as investors reacted to reports that North Korea had agreed to hold a summit of talks with South Korea.
In the first summit of its kind in a decade, South Korea has also claimed that the North may be willing to negotiate with the US and denuclearise if the regime’s security can be assured.
While there is still uncertainty over whether denuclearisation of North Korea is possible, increasing signs of diplomacy have left markets much more calm about potential clashes between North Korea and South Korea or the US.
As market anxiety fades, ‘safe haven’ currencies like the US Dollar are less appealing. This made it easy for EUR/USD to climb on Tuesday.
EUR/USD was trending near a fortnight high of 1.2417 at the time of writing.
[Published 13:02 GMT 06/03/2018]
Euro to US Dollar (EUR/USD) Exchange Rate Surges as ECB Anticipation Keeps Euro Appealing
Despite political uncertainty in the Eurozone since last weekend, the Euro to US Dollar (EUR/USD) exchange rate has climbed so far since Monday. Market concerns about the US Presidency’s protectionist tone on trade has kept pressure on the US Dollar (USD).
After the US Dollar recovery rally came to an abrupt end last week, EUR/USD ended up climbing slightly from 1.2294 to 1.2316. This morning, EUR/USD briefly touched on a two-week-high of 1.2400.
The Euro (EUR) remained appealing despite the concerning and uncertain results of Italy’s 2018 general election over the weekend.
This is because markets remained optimistic about other aspects of the Eurozone. German politics have been looking up since a CDU/SPD ‘grand coalition’ was agreed over the weekend, and the bloc’s economy continues to look strong overall.
However, the biggest reason for the Euro to US Dollar (EUR/USD) exchange rate climb on Tuesday was US Dollar weakness.
US Dollar (USD) Exchange Rates Tumble on Rising Demand for Risky Investments
The US Dollar’s weak streak continued on Tuesday, despite signals from the US Republican Party that the US President’s plans for protectionist trade tariffs could be opposed or even blocked.
This was because despite ‘trade war’ concerns cooling slightly, this largely made risk-correlated currencies more appealing again instead of the US Dollar itself.
The US Dollar is a ‘safe haven’ currency and is typically more popular when risk-sentiment is low. However, the currency did not benefit from the ‘trade war’ fears anyway, amid concerns that the US economy would suffer from a trade war too.
As a result, the US Dollar remained weak even as markets calmed and preferred risky currencies.
Risky currencies became even more appealing on Tuesday following news that North and South Korea had agreed to hold a summit in April – the first summit between the two nations in a decade.
The possibility that tensions between the isolated nation of North Korea and other nations like South Korea as well as the US left investors a lot less nervous, and made risky currencies a lot more appealing.
Euro to US Dollar (EUR/USD) Forecast to Continue Climbing if European Central Bank (ECB) Impresses
If markets continue to indulge in a risk-rally in the coming days, the Euro to US Dollar (EUR/USD) exchange rate is likely to sustain most of its weekly gains.
However, if Eurozone political concerns worsen or if upcoming Eurozone news increases Euro dovishness, EUR/USD could still shed its gains.
Wednesday will see the publication of the Eurozone’s third Q4 2017 Gross Domestic Product (GDP) projections.
Eurozone growth is forecast to have slowed slightly from 2.8% to 2.7% year-on-year, but if it falls short of expectations the Euro growth outlook is likely to worsen and EUR/USD will weaken.
Thursday’s European Central Bank (ECB) policy decision is likely to be even more influential to Euro investors. Markets don’t expect the ECB to make any major changes in tone on monetary policy or the Eurozone economic outlook, but any surprises would influence the shared currency.
Stronger signs that the ECB is preparing to take more hawkish language or tighten monetary policy would help the Euro strengthen later in the week.
On the other hand, if the bank expresses concerns about US trade or Eurozone political news this could weigh on the shared currency instead.
As for the US Dollar, some ADP employment stats and trade balance data on Wednesday could influence the currency slightly.
Still, markets are likely to focus on trade tariff news from the US Presidency, as well as anticipate Friday’s session when February’s key US Non-Farm Payrolls report will be published.