Euro US Dollar (EUR/USD) Exchange Rate Dips as Hamas-Israel Fighting Prompts Risk-Off Trade
The Euro US Dollar (EUR/USD) exchange rate is weakening today, as the conflict in the Middle East damages the market mood.
At the time of writing, EUR/USD is trading at around US$1.0548, a fall of just under 0.4% dfrom the morning’s opening rates.
US Dollar (USD) Climbs as Hamas-Israel Conflict Sours Market Mood
The US Dollar (USD) strengthened at the beginning of Monday’s session, before trimming some of its gains towards the end of the European session.
This began as appetite for safe investments skyrocketed at the beginning of the day. Over the weekend, Hamas launched an attack against Israel, sparking concerns that oil-producing Middle Eastern territories could be drawn into the conflict.
This, in turn, sent oil prices rising, raising fears of renewed inflationary pressures. This further sparked anxiety over the outlook for the global economy – if inflation increases again, interest rates may climb higher.
Russ Mould, Investment Director at AJ Bell, commented:
‘As it nearly always does, an escalation of tensions in the region has helped push up oil prices. This is inevitable given how much of the world’s crude reserves and production are centred there. The wider risk is that a sustained increase in oil prices would act as a renewed inflationary pressure and further underpin the higher rates for longer message which investors in the equity and bond markets seem to be belatedly coming to terms with.’
However, US bond markets are closed today. As such, index measures and stock markets are in the spotlight, bringing further tailwinds for USD.
Euro (EUR) Muted amid Disappointing German Data
The Euro (EUR) is enduring underwhelming trade today, following a disappointing set of German industrial production data.
This morning, August’s production data printed below forecasts, and show a 0.2% decline in activity on a monthly basis. Economists had anticipated a smaller 0.1% fall.
As Germany is the Eurozone’s largest economy, signs of continued struggle within the German industrial sector are weighing on EUR.
Additionally, with the US Dollar gaining ground during today’s session, the common currency has been enduring headwinds. The pairing shares a negative correlation, meaning that as USD rates strengthen, EUR is unable to garner additional traction.
Euro US Dollar Exchange Rate Forecast: Central Bank Speeches in Focus
Looking ahead for the Euro, European Central Bank President Christine Lagarde is scheduled to deliver a speech tomorrow.
While the ECB has recently erred dovish in its communique, if President Lagarde strikes a hawkish tone, EUR rates could strengthen. However, if she maintains the cautious outlook, the Euro could weaken.
For the US Dollar, tomorrow brings another slat of speeches from Federal Reserve officials, namely Waller, Kashkari and Daly.
If these speeches indicate a hawkish consensus amongst the Fed, the US Dollar could strengthen amid renewed tightening bets.
Elsewhere, risk appetite is likely to continue to drive the pairing as investors remain concerned over further developments in the Middle East. Further news of fighting between Hamas and Israel could sour the market mood and boost the ‘Greenback’.
