Leap in Market Risk Appetite Pushes Euro US Dollar (EUR/USD) Exchange Rate Lower
A surge in market risk appetite left the Euro to US Dollar (EUR/USD) exchange rate on the back foot at the start of the week.
Jo Biden’s victory in the US presidential election gave investors renewed cause for confidence on Monday morning, putting pressure on the Euro (EUR) as demand for higher-risk assets picked up.
While political gridlock in the US Senate could stall the prospect of any fresh package of US fiscal stimulus support this failed to keep the US Dollar (USD) under pressure.
Market confidence was further encouraged as Pfizer announced that its trial Covid-19 vaccine has proved 90% effective in preventing infection.
Although the wide-spread availability of the vaccine remains a relatively distant prospect the possibility of an end to the pandemic sparked a major bout of risk-appetite, putting further pressure on the EUR/USD exchange rate.
Weakening Eurozone Economic Sentiment Forecast to Weigh on Euro Demand
Support for the Euro could weaken further on Tuesday with the release of November’s Eurozone and German ZEW economic sentiment indexes.
Forecasts point towards both figures showing a substantially dip on the month, suggesting that sentiment among businesses deteriorated.
With markets already wary of the growing possibility of the currency union experiencing a double-dip recession before the end of the year any weakening in economic sentiment may drag on the Euro.
Unless sentiment holds up on the month the EUR/USD exchange rate looks set to shed further ground as investors brace against the slowdown of the Eurozone economy.
Upcoming commentary from European Central Bank (ECB) policymakers may also put pressure on the single currency this week.
As long as signs continue to point to the central bank enacting fresh monetary loosening measures at its December policy meeting this looks set to limit the strength of the Euro.
US Dollar Appears Vulnerable to Softening Business Optimism Index
Fading market risk appetite could offer the US Dollar a greater leg up, however, if investors see reason to buy into safe-haven assets once again.
If October’s NFIB business optimism index slips from 104 to 102.2 as forecast, though, this may limit the potential for USD exchange rate gains on Tuesday.
Evidence of increasing anxiety among US businesses could fuel speculation that the world’s largest economy may struggle to deliver strong growth in the final months of the year.
With political uncertainty still far from over, in spite of the calling of the presidential election, the upside potential of the US Dollar may well prove limited this week.
Unless the US economy can demonstrate signs of resilience in the face of ongoing Covid-19 disruption the EUR/USD exchange rate could find some traction in the days ahead.