EUR/USD Exchange Rate Improves, Eurozone Economic Sentiment Rises
The Euro US Dollar (EUR/USD) exchange rate rose by 0.4% today, with the pairing currently fluctuating around $1.09 after February’s Eurozone economic sentiment indicator beat forecasts and rose from 102.6 to 103.5.
However, with the rise of the coronavirus in European countries, the Euro’s (EUR) gains are likely to be temporary as investors rush to other safe-haven currencies like the US Dollar.
Petr Krpata, IR Strategist at ING, comments:
‘Despite the risk-off environment, EUR/USD is moving higher, a likely function of the euro short squeeze and more aggressive market pricing of Fed rate cuts. Still, given the challenges to the Eurozone economy and the likely reactive rather than proactive Fed stance, EUR/USD upside is unlikely to have legs.’
Today also saw February’s Eurozone business climate report rise to a better-than-expected -0.4.
Euro (EUR) investors will be looking ahead to today’s speech from Philip Lane, an Executive Board member of the European Central Bank (ECB). Any downbeat comments about the Eurozone’s economy and of the economic impact of coronavirus would weaken the EUR/USD exchange rate.
Artur Baluszynski, Head of Research at Henderson Rowe, was downbeat in his analysis of the global economy, saying:
‘European economies such as Italy and Germany, already weakened by the ongoing US-China trade war, are unlikely to escape unscathed. The news of factory shutdowns coming out of Italy is pretty worrying.’
USD/EUR Exchange Rate Falls as Fed Rate Cut Expectations Grow
The US Dollar (USD) fell today due to rising expectations of a rate cut from the Federal Reserve. Investors believe that the central bank will press on with stimulus measures to offset the impact of Covid-19 on the global economy.
Thu Lan Nguyen, an analyst at Commerzbank, said:
‘Rate cut expectations have gained momentum and U.S. rate expectations are falling a lot more than they are in the [Eurozone].’
US President Donald Trump has also failed to calm markets over coronavirus fears, despite his insistence that the US risk was ‘very low’ after the Australian Prime Minister announced that a pandemic is now ‘upon us’.
US Dollar (USD) investors will be awaiting today’s US economic data. However, with the flash US GDP figure expected to hold at 2.1%, it’s unlikely we will see the USD/EUR exchange rate make any sudden gains.
However, January’s US goods orders figure could boost market confidence in the US economy, with the figure expected to rise from -0.8% to 0.1%.
EUR/USD Forecast: Coronavirus Developments in Focus
Euro (EUR) investors will be looking ahead to tomorrow’s release of Germany’s flash inflation report for February. Any signs of improvement would boost confidence in the Euro as the Eurozone’s largest economy’s outlook improves.
Tomorrow will also see the release of Germany’s unemployment rate report for February, which is expected to hold at 5%.
US Dollar (USD) traders will be awaiting tomorrow’s consumer spending data. If this shows an uptick in February we could see the US economic outlook brighten and lower the odds of Fed rate cut.
Coronavirus developments will continue to drive the EUR/USD exchange rate this week. Any further signs of it spreading throughout Europe would prove EUR-negative.