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Euro US Dollar (EUR/USD) Exchange Rate Rises as Hopes for a US-China Deal Fade

Sheet of US Dollar bills

Euro US Dollar (EUR/USD) Exchange Rate Edged Higher as US Impose Visa Restrictions on Beijing

The Euro US Dollar (EUR/USD) exchange rate rose and the pairing is currently trading at around $1.0985.

Just a day after the US Commerce Department stated it was blacklisting 28 Chinese countries over the mistreatment of Uighur Muslims, the US also imposed visa restrictions on Chinese officials.

In another move that angered Beijing, a US official ensured that high-level trade talks would still take place at the end of the week as planned.

Hopes for a US-China trade deal waned, providing the safe-haven US Dollar with an upswing of support.

However, against the single currency, the Dollar slumped on Wednesday morning.

Commenting on this, ING chief economist for Asia-Pacific, Rob Carnell said:

‘The timing of the US travel bans and company blacklists associated with human rights issues have not helped maintain a positive backdrop to these trade negotiations.

‘They also look likely to provoke some retaliation from China, just a day before Vice Premier Liu He is due to arrive in Washington for trade talks.’

Fed Powell Comments Weigh on US Dollar (USD)

On Tuesday evening, US Federal Reserve Chair Jerome Powell signaled openness to slashing interest rates further.

Powell repeated that the bank would act ‘as appropriate’ to fend off global economic risks while noting that he believes that the US economy is likely to continue to expand.

The Fed slashed rate for the first time in a decade in July, and once again in September, and Powell said the economy ‘may just be gathering itself – there’s no reason why the expansion can’t continue’.

Commenting on this, chief investment officer at Albion Financial Group, Jason Ware noted:

‘It seems that Powell is trying to, in a soft way, demonstrate to the market that the Fed continues to be aware of the downside risks and is actively willing to support the economic expansion as needed.’

Following Powell’s remarks trade in the US Dollar was wobbly, causing the currency to slip against the Euro.

Euro (EUR) Edge Up despite German Industrial Output a Just a ‘Flash in the Pan’

Meanwhile, on Tuesday data revealed that Germany’s industrial output rose unexpectedly in August which provided the single currency with a slight upswing of support.

Output edged up 0.3% despite expectations output would slump, and July’s figure was upwardly revised from -0.6% to -0.4%.

However, it is unlikely this data represents a turning point, and many analysts have said the bloc’s largest economy remains at risk of recession after months of disappointing data.

In a note, VP Bank’s Thomas Gizel wrote:

‘Given that industrial output provides us with a deep look into the economic development in the third quarter, one could entertain the idea that the German economy will just about avoid a recession.

‘But unfortunately one must consider the industrial production data for August as a flash in the pan. We expect production in September to be negative. This means that GDP will contract at least slightly in the third quarter.’

Euro US Dollar Outlook: Will a Dovish Fed Weigh on USD?

Looking ahead to this evening, the US Dollar (USD) could fall against the Euro (EUR) following the release of the Federal Open Market Committee (FOMC) meeting minutes.

If the Fed is overly dovish about the future and hints at the possibility of a near-term rate cut, the ‘Greenback’ is likely to slide.

Meanwhile, the Euro could slump on Thursday following the release of Germany’s import and export data.

If exports slide further than expected in August, it could leave the Euro US Dollar (EUR/USD) exchange rate muted.