Euro US Dollar (EUR/USD) Exchange Rate Edges Higher despite Threat of Second Wave of Coronavirus
The Euro US Dollar (EUR/USD) exchange rate edged around 0.3% higher on Tuesday. This left the pairing trading at around $1.0843.
The US Dollar was unable to make significant gains against the Euro on Tuesday despite growing fears of a second wave of the virus.
New infections have been found in several countries including China, South Korea, and Germany. This comes as the respective governments have begun to ease coronavirus lockdowns.
This weighed on markets as a second wave of coronavirus infections could hurt hopes for a quick global recovery.
Commenting on this, Lee Hardman, currency analyst at MUFG noted:
‘While the numbers of cases was relatively small, they do play into market fears over the threat posed by a second wave of COVID-19 infections and highlight the challenging path ahead for the global economy.’
This came after the US Federal Reserve played down the likelihood of US interest rates being dragged into negative territory.
Fed policymakers have said they will do what it takes to help cushion the economy which has been hit by widespread coronavirus lockdowns. Although, they noted they would stop short of cutting interest rates below zero.
Looking ahead, markets are focused on speeches from Fed policymakers to look for further reassurance the bank will not cut rates below zero.
Euro (EUR) Rises as Germany Eases Coronavirus Restrictions
The single currency was able to make gains against the US Dollar despite data showing that German economic output likely plummeted due to the coronavirus crisis.
The KfW state development bank said that output is likely to have fallen by 20-25% for several weeks due to the pandemic.
The bank also added that activity is likely to have reached its lowest level in April providing there is not a second wave of the virus.
Germany went into lockdown in March in attempts to help contain the coronavirus outbreak.
Last week saw Chancellor Angela Merkel announce steps to ease restrictions and launch an ‘emergency brake’ mechanism. This allows renewed restrictions in case the number of infections rebounds again.
According to KfW chief economist Fritzi Koehler-Geib:
‘The coronavirus crisis hit Germany like lightning.’
Koehler-Geib noted that while the recovery was unlikely to start before the second half of 2020, the economy could reach its pre-crisis levels around Q3 2021.
Euro US Dollar Outlook: Will Disappointing US Inflation Weigh on USD?
Looking ahead to this afternoon, the US Dollar (USD) could edge lower against the Euro (EUR) following the release of US inflation data.
If inflation slumps further below the Federal Reserve’s target, it will send the ‘Greenback’ lower against the Euro.
However, the single currency could give up today’s gains on Wednesday following the release of industrial production data.
If the bloc’s industrial production plummets to the lowest level in over a decade, it will leave the Euro US Dollar (EUR/USD) exchange rate flat.