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Euro to US Dollar Exchange Rate Tight as German Coalition Brings Fresh Compromise

Signs of Progress in German Coalition Talks Push EUR/USD Exchange Rate Up

The Euro to US Dollar exchange rate has risen marginally on Wednesday’s trading session, although the pairing continues to trade in a narrow range.

The latest news out of the Eurozone has been positive, with German coalition talks slowly edging towards mutual agreement.

Having compromised on climate change legislation earlier in the week, the CDU/CSU union and SPD Party have now agreed on laws to bring skilled immigrants into Germany.

Immigration remains a highly divisive issue in German politics, following Chancellor Angela Merkel’s decision to open Germany’s doors during the height of the migrant crisis in 2015.

Reassuring those who are worried of another collapse in discussions, CSU Secretary General Andreas Scheuer said;

‘Ever since we started the exploratory talks and even in the discussions before them, there’s been a trustful and collegial atmosphere, so [talks] won’t fail due to that’.

9-Year Low in Eurozone Unemployment Fails to Bring Lasting EUR/USD Support

Eurozone unemployment was reported down from 8.8% to 8.7% on Tuesday, although the reduction in the November jobless rate has failed to keep the EUR/USD exchange rate up.

While this was the lowest level of Eurozone-wide unemployment since 2009, the overall figure obscures countries that still have relatively high jobless rates across the currency bloc.

As well as Greece and Spain, Italian unemployment also remains significant in 2018, as LC Macro Advisors Chief Economist Lorenzo Codogno points out;

‘Labour market data [is] positive and shows that reform works. Still, [the unemployment rate] remain very high. There is no feelgood factor’.

Dovish Fed Comments Leave USD/EUR Exchange Rate Low

The US Dollar has fallen in value on Wednesday’s trading session, following cautious remarks from a key Federal Reserve policymaker.

Neel Kashkari, President of the Fed Bank of Minneapolis, has stated that the Fed should leave interest rates low in 2018 to boost national wage growth and inflation.

Kashkari is not a voting member of the Federal Open Market Committee (FOMC) in 2018, but his words still carry weight among USD traders.

Current expectations are for three or four US interest rate hikes in 2018, but Kashkari’s comments have gone in clear opposition to this outlook.

Euro to US Dollar Forecast: Will Rising German GDP Boost EUR/USD Exchange Rate?

Looking ahead to Thursday, the Euro could advance against the US Dollar if Germany reports overall GDP growth in 2017 as expected.

The full-year reading is tipped to show a rise in growth rates from 1.9% to 2.5%; such an outcome could greatly boost Euro trader confidence going ahead.

Following Kashkari’s remarks, the US Dollar could be moved by this afternoon’s speeches from Fed officials Charles Evans and James Bullard.

Neither are voting members of the Fed this year, but as with Kashkari, they could provoke significant US Dollar movements if they have strong views on future Fed policy.