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Euro US Dollar (EUR/USD) Exchange Rate Dips as Italy’s Budget Uncertainty Renews Fears of EU Disciplinary Action

Euro US Dollar (EUR/USD) Exchange Hit after Renewed Italian Budget Uncertainty

The Euro US Dollar (EUR/USD) exchange rate dipped today, and is currently trading at $1.1274, after the release of Germany’s Gfk consumer confidence survey showed a decrease for December.

EUR is coming under increasing pressure after Italy showed signs of retracting its compromise over its controversial budget, potentially forcing the European Commission to push forward with its disciplinary procedure.

The US Dollar (USD), meanwhile, was strengthened by Federal Reserve Vice-Chair Richard Clarida’s comments yesterday, when he stated that the economy was showing ‘strong growth’ – words that were interpreted as being hawkish by traders.

However, USD gains were somewhat tempered by a decrease in the US housing market, with the S&P/Case-Shiller home prices index for September showing a 5.1% rise year-on-year, which was slightly below the consensus estimate.

EUR/USD Struggles as German Consumer Confidence Slides

The EUR/USD exchange rate dipped this morning following a decrease in Germany’s consumer confidence levels for December, which showed a figure of 10.4, representing a 0.2 drop from last month’s figure of 10.6.

With growing concerns over a slowing Eurozone economy, any signs of an economic downturn from the EU’s largest economy will have markets feeling skittish over the single currency.

However, EUR found some support today from an above-forecast increase in the Eurozone M3 money supply, which rose by 3.9% in October on a yearly basis.

US Dollar (USD) Rises after Hawkish Remarks from Fed’s Richard Clarida

The US Dollar Euro (USD/EUR) exchange rate is up following some hawkish remarks from the Fed’s Richard Clarida yesterday.

USD could find further strength today with the release of a range of ecostats, with ‘Greenback’ investors keeping an eye on the release of the annualised Q3 Gross Domestic Product (GDP) figures.

The Q3 second estimate GDP growth rate is expected to come in at 3.5% which, while still strong, would represent a fall from the previous quarter’s growth rate of 4.2%. Any upside surprises here would likely bolster the USD/EUR exchange rate.

The release of consumer data from the US Department of Commerce today also looks set to remain the same for the third-quarter, however this could also see the US Dollar (USD) gaining on the Euro should an unexpected increase occur.

The Federal Reserve’s Chair, Jerome Powell, is set to deliver a speech today, with Krishna Guha, Head of Central Bank Strategy at Evercore ISI, saying:

‘In our view the likelihood that Powell will signal that the Fed is preparing to stop and take a timeout on rates is very low . . . [and that it] may be the most consequential of his tenure to date.’

EUR/USD Outcome: Italy Remains in Focus for EUR while USD Awaits Manufacturing Data

The EUR/USD exchange rate will be sensitive to any disciplinary actions levelled against Italy, with the EU commissioner Valdis Dombrovski’s warning today that Rome needs to make a ‘substantial correction’ to its draft budget or potentially face EU fines.

Friday’s release of the EU’s Consumer Price Index is expected to drop by 0.2% on October’s 2.2%, potentially revealing slowing Eurozone activity.

However, this could be bolstered by Friday’s unemployment figures for October, with any above forecast results likely to bolster EUR.

Friday also sees the release of the Chicago Fed’s manufacturing figures for November, although expectations are generally dovish with a predicted drop of 0.4 from October’s 58.4 potentially symptomatic of a slowing US economy, and dampening market sentiment in the ‘Greenback’.

Overall, the EUR/USD exchange rate will be driven by a mixture of political and economic factors this week, with the main focus being on inflation and consumption data.