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Euro US Dollar (EUR/USD) Exchange Rate Rallies as US Federal Workers set to Miss Second Paycheck

EUR/USD Exchange Rate Pushes Higher as US Senate Blocks Duelling Bills

The Euro US Dollar (EUR/USD) exchange rate rose over the course of Friday morning, and is currently trading at an inter-bank rate of $1.1345.

As the US government shutdown continues, the Senate has blocked duelling bills to provide the government with funding last night, with a resolution still not in sight.

In back-to-back votes the Senate blocked the President’s proposal to add $5.7bn for his border wall to then resume funding the government, and a second vote on a Democratic measure to omit the wall. Neither side was able to get the 60 votes needed to advance its bill.

This now means that 800,000 federal workers are going to miss their second pay cheque, as neither President Donald Trump nor Democrats are showing any willingness to back down, with Trump insisting on securing funding for the wall before he agrees to fund the government.

Meanwhile, the release of Germany’s IFO business expectations and business climate figures for January fell lower than forecast, which did little to stop the Euro making gains on the Dollar.

Yesterday: Euro (EUR) Slides as Eurozone Economy Edges Closer to Stagnation

Yesterday, the release of the Markit composite PMI showed that business growth in the Eurozone had stalled to a five and a half year low this month, as the economy edged closer to stagnation.

Chris Williamson, Chief Business Economist at IHS Markit stated:

‘Both the manufacturing and service sectors are close to stagnation, highlighting the broad-based nature of the current slowdown. Ongoing auto sector weakness, Brexit worries, trade wars and the protests in France were again widely cited as factors dampening growth, but the survey responses indicate that a deeper malaise has set in at the start of the year. Companies are concerned about a wider economic slowdown gathering momentum, with rising political and economic uncertainty increasingly affecting risk appetite and demand.’

The Euro was dragged lower following the European Central Bank’s (ECB) decision to leave interest rates unchanged, as forecast, at 0%.

ECB President Mario Draghi downgraded the bank’s growth outlook, and reaffirmed its stance to keep rates at their current levels throughout the summer of 2019 and ‘longer, if necessary’, due to the ‘persistence of uncertainties.’

Yesterday: US Dollar (USD) Rallies as US Jobless Claims hit 49-Year Low

The release of the US Markit services and manufacturing PMIs showed that the US manufacturing sector had regained momentum, although services saw the weakest rate of growth in a year and a half.

Despite this, the Dollar rallied against the Euro on Thursday afternoon, although this was likely a result of the ECB’s interest rate decision.

Chris Williamson, Chief Business Economist at IHS Markit stated:

‘The jobs data from the surveys were also somewhat disappointing, with the overall rate of job creation slipping to a 20-month low. However, even this weaker January survey employment index reading is consistent with private sector payroll growth of approximately 150,000.

‘Encouragingly, business sentiment about the year ahead lifted higher, suggesting companies have started the year with increased optimism, boding well for robust business growth to be sustained in coming months.’

Further increasing sentiment in the US Dollar was the better-than-expected US jobless figure, which saw people in the US seeking unemployment benefit slide to the lowest level since November 1969. This demonstrated that, despite the partial government shutdown, the US job market still remains strong.

EUR/USD Outlook: Will US-Sino Tensions Drag on the Dollar Further?

With the lack of significant economic data releases, it seems likely that the focus is going to remain on the political factors that are causing movement for the Euro US Dollar (EUR/USD) exchange rate.

The ongoing US-Sino tensions are likely to impact US Dollar exchange rates as any further indication of a cooling in relations is expected to cause the ‘Greenback’ to slide as investors are likely to pull out of the safe-haven USD.

It seems likely that the US-Sino tensions will continue, with US Commerce Secretary Wilbur Ross commenting:

‘We’re miles and miles from getting a resolution. Trade is very complicated. There are lots and lots of issues.’

The continuation of the US government shutdown also may cause the US Dollar to slide, as further indications that there is no end in sight could see the US currency weaken against the Euro.