EUR/USD Exchange Rate Sinks as ECB Expected to Throw ‘Lifeline’ to Businesses
The Euro US Dollar (EUR/USD) exchange rate dipped by -0.4% today. This left the pairing trading around $1.112.
European Central Bank (ECB) President Christine Lagarde said that the global economy could see a coronavirus-induced recession on a scale not seen since 2008.
David Powell, the Senior Eurozone Economist at Bloomberg, commented:
‘Lots of firms in the euro area are already feeling the pinch from the spread of the coronavirus, but the smaller ones may need the most support […] To play its part, the European Central Bank will probably throw them a lifeline this week, helping to avoid the widespread bankruptcies and layoffs that could threaten price stability once the virus outbreak has passed.”
Euro (EUR) investors are becoming increasingly jittery that the Eurozone could face a recession in the near-term. Additionally, the European Central Bank (EBC) is now expected to take a firmer stance on fiscal stimulus following tomorrow’s interest rate decision.
The EUR/USD exchange rate has struggled this week ever since Italy’s lockdown to prevent the spread of the coronavirus. With fears that Italy’s economic slowdown will have a negative impact on the Eurozone, market appeal for the single currency has been increasingly compromised.
US Dollar (USD) Rises in Spite of Fed Rate Cut Fears
The US Dollar (USD) rose against the weaker Euro (EUR) today in spite of growing speculation over a second interest rate cut from the Federal Reserve.
Analysts at Reuters commented:
‘Global stock markets have tumbled as investors fret about the coronavirus causing a world recession, and roughly $6 trillion of U.S. market value has been wiped out so far. Financial markets are predicting another big interest rate cut over the next week even though estimates on the hit to the U.S. economy vary widely.’
The USD/EUR exchange rate improved following today’s stronger-than-expected US Consumer Price Index for February, which rose by 2.3%.
However, with the US economy’s outlook appearing uncertain amid the global Covid-19 outbreak, market appetite for the US Dollar (USD) is continuing to slip.
EUR/USD Outlook: ECB Interest Rate Decision in Focus
Euro (EUR) investors will be awaiting tomorrows’ interest rate decision from the European Central Bank. If the central bank decides to move into a negative interest rate territory, we could see the EUR/USD exchange rate sink further.
US Dollar (USD) traders, meanwhile, will be focusing on coronavirus developments. Any further instances that this could affect the American economy would raise the odds of a Fed rate cut and weaken the ‘Greenback’.