Euro US Dollar Exchange Rate Slips as Recession Fears Take Hold
The Euro US Dollar (EUR/USD) exchange rate is sliding after the US credit rating has been downgraded, exacerbating fears of a global slowdown.
At time of writing the EUR/USD exchange rate is trading around $1.0978, a 0.28% fall from this morning’s opening levels.
US Dollar (USD) Capped by Shock Credit Downgrade
The US Dollar (USD) is finding modest support against many of its peers today despite Fitch surprisingly downgrading the US government’s credit rating.
Fitch has joined several other credit agencies and announced their rating will be downgraded from AAA to AA+. With expected fiscal deterioration and ballooning government debt as the reasons, markets were spooked over the ramifications. The statement from Fitch said:
‘In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025.
‘The repeated debt limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.’
However, despite Fitch also predicting the US to slide into a recession in 2024, safe-haven flows returned to the fray, cushioning losses for the ‘Greenback’.
Euro (EUR) Quiet as USD Ties Weigh Heavy
The Euro (EUR) is struggling for demand this morning amid a lack of economic data. The negative correlation the Euro shares with the US Dollar however are capping the former.
The single currency could also be finding it difficult to garner demand in the wake of last week’s policy meeting. With the European Central Bank (ECB) poised to be nearing the end of their tightening cycle, EUR investors could be disappointed. ECB President Christine Lagarde commented at the post-meeting press conference that assessing of the data will determine the next move. But also, the central bank remains ‘open-minded’ and could in fact hold rates steady in September.
Euro US Dollar Forecast: Flurry of Data to Dent the Euro Further?
Looking ahead, the Euro US Dollar exchange rate could see further movement with a string of data releases tomorrow. An expected plummet in Eurozone PPI could dampen ECB rate hike bets and send the Euro slipping further.
Meanwhile, USD investors will be awaiting the latest ISM services PMI. Despite expected to remain in expansion territory, the sector’s growth is predicted to slow somewhat. Another sign of slowing economic activity could weigh on the US Dollar and pare rate hike bets further.