Euro to US Dollar Exchange Rate Stabilising Thanks to Week of Impressive Stimulus
Amid the worsening coronavirus crisis, the major Euro to US Dollar (EUR/USD) exchange rate has seen significant movement lately. In March alone, the world’s most-traded currency pair has hit both its highest and lowest levels in over a year amid the huge volatility.
While the US Dollar’s (USD) safe haven appeal is limiting its losses slightly, the Euro (EUR) has mounted a strong recovery this week overall.
EUR/USD opened this week at the level of 1.0744. This was pretty close to last week’s yearly low of 1.0642. EUR/USD has spent this week advancing, touching a weekly high og 1.1080 overnight before sliding again this morning.
At the time of writing, EUR/USD is down from its weekly highs but is still holding above the key level of 1.10.
Much of this week’s Euro gains come from losses in its rival currency, the US Dollar. Investors have been selling the US Dollar back from a surge, as US stimulus action improves global liquidity and softens dominant safe haven demand.
Euro (EUR) Exchange Rates Resilient despite Mixed Progress in Eurozone Stimulus
The Euro has been benefitting strongly from the US Dollar’s weakness this week. This is due to the negative correlation the currency rivals share.
Demand for the Euro has also been supported by various other factors. Amid the US Dollar’s falls, the Euro remains fairly appealing as a safe haven currency.
Its safe haven appeal was slightly bolstered in the middle of the week. EU nations showed more signs of ramping up fiscal stimulus to protect the Eurozone from the coronavirus pandemic.
Efforts from many EU nations to push a ‘coronabonds’ programme have been met with objection from some more hawkish EU nations. However, despite this the Euro remained fairly strong. According to Analysts from ING:
‘Still, EUR/USD continues to head higher as the easing USD funding squeeze is pushing the dollar lower. Compared to USD, EUR benefits from a less loose monetary policy set up and better external position.’
US Dollar (USD) Exchange Rates Steadying after Week of Selloffs
The US introduced a surge of fresh monetary policy and fiscal stimulus over the past week. Both the Federal Reserve and US Congress introduced massive stimulus packages for the US economy and markets.
As the stimulus considerably boosted market liquidity, weeks of strong demand for the US Dollar as a funding currency finally came to an end. The US Dollar was sold back from its highs as safe haven demand softened.
With the intensity of the US Dollar’s safe haven rush of recent weeks now over, the US Dollar saw sharp losses against many major rivals. As of this morning the US Dollar is on track for its biggest weekly losses in a decade.
On top of softer market safe haven demand, the US Dollar was also weighed by the latest US data.
Yesterday’s US jobless claims report showed jobless claims surge by over 3 million, a shocking figure far beyond market expectations.
This, as well as the surging number of coronavirus cases in the US, are worsening market concerns over the potential impact of pandemic in the world’s biggest economy.
Euro to US Dollar (EUR/USD) Exchange Rate Movement Could Steady Further
The Euro to US Dollar (EUR/USD) exchange rate has been surging and tumbling then surging again for the past month. However, that period of sharp volatility could finally be coming to an end.
As this week’s US stimulus has considerably boosted the market’s liquidity, the US Dollar’s exceptional appeal as a funding currency has calmed.
What’s more, the Federal Reserve has indicated it still has more ammo on monetary policy if necessary.
This means that even if the US Dollar advances on safe haven demand again, its gains could be limited as markets are generally a bit calmer. According to Analysts at ING:
‘While it may be still too early to call an end to USD gains (uncertainty about the depth and persistence of the Covid-19 crisis on the global economy remains high), we may now see less abrupt USD moves / gains and less elevated volatility.’
The Euro still has more potential for gains though. If Eurozone fiscal policy attempts improve, or progress is made on ‘coronabonds’, the Euro to US Dollar (EUR/USD) exchange rate is likely to sustain further recovery.