EUR/USD Exchange Rate Increases on US-China Trade War Woes
The Euro US Dollar (EUR/USD) exchange rate rose by 0.6% today, leaving the pair trading around $1.118.
The US Dollar (USD) fell against the Euro (EUR) today following heightened US-China trade tensions, with China reacting in a perceived retaliation following Beijing’s lowering of the Chinese Yuan in the wake of last week’s fresh US tariffs on Chinese imports.
Claudio Piron, a Strategist at Bank of America Merrill Lynch Global Research, commented:
‘I think this is clearly a retaliation that in the past China has refrained from doing… If we go for currency war and we all try to depreciate, it’s a kind of zero-sum game.’
Ulrik Harald Bie, an Economic Editor and former Chief Economist at Nykredit, also tweeted:
Chinese yuan dropped to lowest level since 2008 after President Trump escalated the trade war – and China promised to retaliate. Global equity markets are deep in the red, emerging-market currencies are hit – and yields in safe havens are once again breaking records #macrobond pic.twitter.com/85idxksK2I
— Ulrik Harald Bie (@UlrikBie) August 5, 2019
Meanwhile, US Dollar traders will be looking ahead to today’s publication of the ISM Non-Manufacturing PMI for July, which is expected to improve from 55.1 to 55.5.
As a result, we could see the ‘Greenback’ claw back some of its losses against the Euro today.
EUR/USD Exchange Rate Gains as Traders Flee to Euro Safe-Haven
The Euro has benefited from its safe-haven status amid heightened global economic concerns, with the European currency also benefiting from its negative correlation with the ‘Greenback’.
Today saw the publication of the Eurozone Markit PMI Composite for July, which held steady at 51.5.
Chris Williamson, a Chief Business Economist at HIS Markit, was downbeat in his assessment, saying:
‘The main source of expansion currently appears to be the consumer, in turn buoyed by the relative strength of the labour market. However, with the July survey indicating the weakest jobs gains in over three years, there are signs that this growth engine is also losing impetus, and adding another headwind to the economy for the coming months.’
However, the Euro’s gains are expected to be short-lived as concerns around Brexit and the Eurozone’s economy are likely to return, potentially seeing the Euro begin to slip against the US Dollar later on today.
EUR/USD Outlook: German Factory Orders in Focus
Euro traders will be looking ahead to tomorrow’s publication of the German factory orders figures for June, which are expected to improve from -2.2% to 0.5%.
Therefore, we could see the European currency hold on to some of today’s gains against the US Dollar.
US Dollar investors, meanwhile, will be awaiting the speech by James Bullard, the President of the Federal Reserve Bank of St Louis.
Any indications of dovishness regarding the Fed’s monetary policy going forward could alarm traders to a possible rate cut in September, which would prove USD-negative.
The EUR/USD exchange rate will remain volatile this week, with US-China trade tensions remaining in focus while Brexit is likely to continue to prove a drag on the European currency.