- Euro US Dollar Slides to 1.1897 – US Dollar Euro Climbs to 0.8401
- Merkel’s CDU Receives Worst Result Since 1949 – Demand for the Single Currency Drops
- Trump Tax Reform in the Spotlight – US Dollar Gains Before Fed Speeches and Tax Reform
The Euro US Dollar exchange rate jumped at the start of this trading week as leader of the Christian Democratic Union of Germany (CDU) Angela Merkel expressed her disappointment over the result of the election.
Whilst the CDU did win the most votes, its share fell by some -8%, (the worst the party has experienced since 1949), as voters turned instead to the Alternative für Deutschland Party (AfD).
Beyond this, Germany’s Social Democratic Party (SDP) announced that they will not be continuing to govern in a coalition with Merkel after they only gained some 20% of the vote – their worst result in post-war history. This has left the CDU floundering somewhat as it looks to build a coalition with either the Greens or the FDP.
This is, in essence, the crux of the issue investors now have with the Euro; that beyond the upheaval and thus uncertainty involved with such a result, Merkel will now have to seek a coalition with parties not necessarily known for robust financial management.
Investors are also somewhat panicked by the surge in AFD popularity, particularly because of their Eurosceptic stance.
Connor Campbell, financial analyst at Spreadex.com, shared this sentiment:
‘Merkel’s diminished authority – and the rise of a party with links, and similar Eurosceptic views (among other things), to UKIP and France’s National Front – appears to be weighing on both the euro and the region’s indices’.
This news has left the single currency severely encumbered as markets digest the election, leaving the ‘Greenback’ with its highly likely 2017 rate hike, the more attractive prospect.
USD Climbs before Fed Official Speeches
The US Dollar hit the ground running this week as investors sighted imminent speeches from 11 of 16 members of the Fed, with 6 of that number being voting members.
Notably William Dudley is due to speak on Monday, Janet Yellen on Tuesday and Stanley Fischer on Thursday.
Whilst the Fed did not vote to alter rates during this month’s meeting, the central bank did announce the tapering of the bloated balance sheet and claimed that they were still on track for a December rate hike, pushing expectations up to 60%.
In this respect markets are expecting many of the coming speeches to feature a continuation of hawkish sentiment, with any confirmation of future monetary policy tightening liable to push the ‘Greenback’ higher.
Beyond this, the Trump Administration is due to re-launch its tax re-form policy, something that markets are beginning to gain confidence in after seeing recent cross party cooperation taking place on things like the storm relief and the debt ceiling.
This too has driven the US Dollar higher, as traders begin to price in the possibility that the administration might be more capable at passing tax reform than previously thought.
EUR USD Forecast: Fed and ECB Speeches and Big Data Ahead
Whilst various members of the Fed are due to speak this week, so is the European Central Bank’s (ECB) President Mario Draghi, though markets aren’t hoping for much from this one after his speech last week wherein monetary policy wasn’t mentioned.
If Mario does choose to discuss monetary policy, however, then he could be seen sticking to his guns and repeating hawkish sentiment; an event that would drive the Euro higher.
Beyond this there are a large number of US data releases due, including consumer confidence figures on Tuesday, durable goods orders on Wednesday, GDP and the advance goods trade balance on Thursday and finally the personal consumption expenditure core on Friday.
Whilst the immediate outlook for EUR USD remains gloomy, its prospects could quickly change in the wake of the considerable number of data releases due this week.