- Euro US Dollar Exchange Rate Rallies on Euro Strength – Lack of safe-haven demand keeps US Dollar low while Euro rallies surprisingly.
- Italian Banking Crisis Continues to Weigh on Eurozone – Severe looming instability from the potential collapse keeps Investors eying the Euro intensely.
- Eurozone Finance Ministers Predict Substantial Downturn for Growth within the Bloc – A group of financial policymakers from the EU lower growth outlook by 0.2%
- EUR/USD Forecast: Pairing Rally Possible on Weak US Data.
Falling safe-haven currency demand saw the Euro US Dollar exchange rate appreciate over the start of the week as the ‘Buck’ was tamped down by lacklustre US ecostats and the continued unlikelihood of a near-term US Federal Reserve rate hike.
The Euro itself has experienced a rough time lately as continued post-Brexit financial fallout weighs heavily on European growth and confidence indexes. Various European finance ministers have come out in warning of the Brexit significantly impacting Eurozone growth, with some stating that it could fall to 0.5% by 2017.
Before the end of yesterday’s session, the Euro US Dollar exchange rate traded at 1.1114 after rising 0.50% over the course of the day.
Euro (EUR) Recovers From Tuesday Night EUR/USD Slide as Safe-Haven Demand Jumped Temporarily
The European common currency has experienced sustained downward pressure under the weight of Italy’s growing banking crisis. The country’s financial institutions require a significant bailout to ensure they are sufficiently insulated in the event that a large majority of the mounting €300 billion-plus worth of bad loans defaults.
Just over €200 billion worth of the bad debt has been written off as unlikely to be collected as Italian Prime Minister Matteo Renzi has been eyeing a taxpayer-funded public bailout of the flagging financial institutions. Already Italian Banks’ stocks have shown marked declines.
New EU banking guidelines enacted in January suggest creditors should first be bailed-in to a sufficient level before and public money is used, however Renzi has nodded towards a potential flouting of these rules even after the hefty bill left at the feet of taxpayers after the 2008 world banking crisis.
The looming crisis will continue to have an impact until some form of contingency plan is enacted.
Eurozone finance ministers’ remarks continued to weigh on the currency as a significant number of policymakers drove back home the issue of subdued European growth in reaction to the UK’s ongoing Brexit proceedings.
Another blow for the Euro came in the form of yesterday’s disappointing industrial production report for May. Even in the pre-Brexit period the sector saw substantial declines so this gives credence to the likely severity of next month’s release which is bound to would the currency once again.
US Dollar (USD) Experiences Swings for Fluctuating Demand and Weak Ecostats
Investors shied away from the safe US Dollar this week as previously, rallying commodities and strong global equities tempted traders into the riskier yet higher-yielding commodity-correlated currencies.
With the market in a firmly risk-on attitude, demand for the US Dollar fell away and risk aversion was lifted further thanks to the political situation within the United Kingdom gaining some much needed clarity. Almost all US Dollar movement so far this week appears to be in line with market sentiment.
‘Greenback’ demand has been rendered further as the US import price index continued in negative figures as shown in yesterday’s release. While this bodes well for cheap US imports, it brings the likelihood of a US Federal Reserve rate hike even lower, if that is possible.
Downside pressure from decreasing US wholesale inventories also helped the US Dollar on its slide south.
The ‘Buck’ could find favour later today though, if the Bank of England cuts rates as expected. With the Pound plummeting in relation to a rate slash, investors could flock to the perceived safe-haven of the US Dollar until the markets relax.
Euro US Dollar Exchange Rate Holds Movement Potential on Friday’s High-Importance Releases
Some extraneous US jobs data is set for release later today but it is unlikely to elicit much movement in the US Dollar unless the figures print wildly out of expectations. However it is likely to be drowned out by the Bank of England’s interest rate deliberations.
Tomorrow sees the release of three high-impact data releases from the US which all hold a fair amount of potential for US Dollar movement. The first two, the advanced retail sales report and University of Michigan confidence survey, both serve as indicators for general consumer sentiment. If they show a marked increase then it bodes well for US business as the public is physically pouring more money into the system.
The other release set for Friday could slightly raise hopes for a US Federal Reserve rate hike in the coming months. The US consumer price index is the Fed’s preferred measure of inflation and could lead to the increased likelihood of a hike if the report shows inflation edging towards the Fed’s ‘sweet spot’ inflation target.
Eurozone Inflation figures are also set for release tomorrow. Again, if the figures print closer to the European Central Bank’s (ECB) inflation target then the Euro could expect to see some increase in demand. Currently the rate sits at under half of the ECB’s desired 2%.
The ECB’s survey of professional forecasters holds the potential for notable currency movement as the report will likely affect current market sentiments.
Ultimately, it appears that the high-impact releases from the US tomorrow will elicit the most movement in the Euro US Dollar exchange rate, with potential for US Dollar demand to rise on the back of today’s BoE rate decision.