Euro US Dollar (EUR/USD) Exchange Rate Muted as Covid-19 Threatens Eurozone Growth
The Euro US Dollar (EUR/USD) exchange rate remained flat on Thursday, leaving the pairing trading at around $1.0868.
The single currency remained muted after the European Commission left the bloc’s 2020 and 2021 growth forecasts unchanged.
While the EU expects moderate growth in the bloc, it also focused on the downside risks of Covid-19.
The first phase of a US-China trade deal removed some headwinds, but the spread of the virus within China is the largest risk to economic growth.
The EC noted:
‘On the positive side, there are tentative signs of stabilisation in global trade and encouraging developments on the US–China trade front. There is also clarity about trading relations between the EU and the UK, but this is only from now until 31 December this year.’
In its report, the Commission also stated:
‘The baseline assumption is that the outbreak peaks in the first quarter, with relatively limited global spillovers. The duration of the outbreak, and of the containment measures enacted, are a key downside risk.
‘The longer it lasts, the higher the likelihood of knock-on effects on economic sentiment and global financing conditions.’
US Dollar (USD) Flat despite Optimistic Fed Powell
The Dollar remained muted against the Euro after Federal Reserve Chair, Jerome Powell emphasised that the outlook for the US economy remains good.
On Wednesday, Powell emphasised that he had confidence in the economy despite the drag Covid-19 is likely to cause.
During his second day of his congressional testimony, Jerome Powell noted:
‘There’s no reason why the current situation of low unemployment, rising wages, high job creation – there’s no reason why it can’t go on. […] There is nothing about this economy that is out of kilter or imbalanced.’
He did state that the bank was watching the coronavirus, and added that this will affect the US economy, and this will be reflected in economic data ‘relatively soon’.
However, after the number of cases on the virus skyrocketed in China by 14,840 and the number of deaths increased by a daily record of 242, investors moved towards safe haven currencies.
Euro US Dollar Outlook: Eurozone Growth Data in Focus
Looking ahead , the US Dollar (USD) could edge higher against the Euro (EUR) following the release of US inflation data.
If inflation rises as expected in January, the Dollar will receive further support.
Meanwhile, disappointing GDP statistics for both Germany and the Eurozone could send the single currency lower.
If Q4 GDP does not rise as high as expected, the Euro US Dollar (EUR/USD) exchange rate will slide.