Weak Markets and Eurozone Political Uncertainties Keep Pressure on Euro to US Dollar Exchange Rate
Following last week’s tumble, the Euro to US Dollar (EUR/USD) exchange rate sees limp movement this morning as investors perceive a lack of reasons to buy the Euro (EUR) amid Italian political uncertainties and persistent safe haven demand.
Concern with Eurozone political developments and economic news, as well as demand for safe haven currencies like the US Dollar (USD), dragged EUR/USD lower last week.
EUR/USD opened last week at the level of 1.1526 and tumbled over a cent to close the week at 1.1412. Still, EUR/USD was able to recover from Friday’s fresh one-year-low of 1.1338.
When markets opened this week, EUR/USD trended a little lower than the week’s opening levels amid concerns about the stability of German Chancellor Angela Merkel’s coalition government, and concerns rose about the Eurozone’s ability to handle a fresh potential crisis.
Euro (EUR) Exchange Rates Limp as Eurozone Political Fears Rise
Last week saw the Euro hit by the latest concerning Eurozone PMI projections, as well as fears that Italy and the EU would not be able to reach an agreement on the issue of Italy’s budget proposal.
With seemingly no progress between Italy and the EU since last week, analysts are concerned that tensions between the Italy and the EU could continue to worsen.
Concerns about the strength of German Chancellor Angela Merkel’s coalition government also rose over the weekend as both major parties in her coalition suffered big losses during a regional election in Hesse.
The parties’ performances were 10% down on previous performances, causing criticism from Merkel’s allies in the SPD party.
On top of this, attempts from France’s Finance Minister, Bruno Le Maire, to calm jitters about Italy’s budget issue may have made markets more anxious instead.
Le Maire said that there was no risk of contagion from the Italian budget issue, but went on to say that the Eurozone was not prepared enough to face a new crisis if one were to emerge. These factors left the Euro unappealing on Monday.
US Dollar (USD) Exchange Rates Continue to Hold Amid Safe Haven Demand
Due to the a lack of drive to buy the Euro, the US Dollar easily held most of last week’s gains during Monday morning movement.
Most of the US Dollar’s strength last week was due to poor performance in global markets, making investors hesitant to take risks and more eager to buy safe haven currencies like the US Dollar.
Analysts note that last week made October 2018 into one of the worst months for global markets in a decade, since the 2008 financial crisis.
Plus, according to Kyle Rodda there may still be further losses to come for markets:
‘There’s room for a bit of a downside to go, because I do see this as being largely a structural shift in markets,
Sentiment is still to the downside, is still quite bearish and there will be a little while for this correction to play out.’
Due to concerns that markets could fall further, safe haven currencies like the US Dollar continue to climb.
However, other analysts have noted that bullish bets on the US Dollar have reached their lowest point in around a month, potentially indicating that the currency’s strength is limited.
Euro to US Dollar (EUR/USD) Exchange Rate Could Find Support in Stronger Eurozone Data
As bullish bets in the US Dollar are sliding and the weakness in global markets may slow to an end in the coming weeks, the US Dollar could be in for a selloff soon.
In particular, if US data disappoints investors and drives markets towards other safe havens like the Japanese Yen (JPY), the Euro may be able to more easily recover against the US currency.
Euro investors will be looking ahead to key data due for publication in the coming sessions, which could offer the shared currency some fresh support if it impresses.
Tuesday will see the publication of France’s Q3 Gross Domestic Product (GDP) projection, as well as the Eurozone’s own overall Q3 projections.
Eurozone business and consumer confidence survey prints from October will be published too.
To round it off, Germany’s Consumer Price Index (CPI) inflation rate report from October will be published in the afternoon.
Further key data will be published later in the week, including Eurozone inflation figures on Wednesday and US Non-Farm Payroll stats on Friday which may also influence the Euro to US Dollar (EUR/USD) exchange rate.