- Euro US Dollar Exchange Rate Near 1.11 – Pair fails to hold best levels
- French Legislative Elections go Well for Macron – ‘en Marche!’ wins clean majority
- EUR Forecast: Eurozone PMIs on Friday – Indication of Eurozone’s strength in June
- USD Forecast: Quieter US Calendar Ahead – Political news could still hit USD however
Euro US Dollar Drops on Higher Fed Rate Hike Bets
Amid a lack of fresh influential data and higher Fed interest rate hike bets, the Euro US Dollar exchange rate continued to slide on Tuesday.
As investors are speculating that the US may get a third interest rate hike in 2017 after all, EUR USD has been sold from its highs on profit-taking.
Towards the end of Tuesday’s European session, the Euro US Dollar exchange rate hit a low of 1.1120. This was the pair’s worst level since May.
[Previously updated 12:45 BST 20/06/2017]
The Euro US Dollar exchange rate eventually dropped on Monday despite confidence in French President Emmanuel Macron, as investor concerns about the US economy lightened.
Demand for the US Dollar improved on Monday as New York Federal Reserve President William Dudley made optimistic comments about the US economy. Dudley expects that a tight US job market will help to stimulate US inflation again, after it was revealed that US inflation was unexpectedly slow in May.
On the other hand, Chicago Fed President Charles Evans took a more dovish stance, arguing that it may be worth waiting until the end of the year before deciding on another US interest rate hike.
However, analysts have pointed out that Dudley more commonly represents the majority view of Fed officials. As a result, his comments boosted 2017 interest rate hike bets and the ‘Greenback’ Dollar strengthened.
[Published 10:58 BST 19/06/2017]
After wide fluctuations last week the Euro US Dollar exchange rate ultimately ended relatively close to its opening levels. A lack of fresh supportive Euro news as well as underwhelming US ecostats left the pair volatile.
EUR USD began last week trading at the level of 1.1195. The pair briefly surged to a high of 1.1293 and dipped to a low of 1.1138 throughout the week, but ultimately ended just below the opening level at 1.1190.
Euro (EUR) Slightly Supported by Macron’s Success
Eurozone data over the last week has been either underwhelming or not hugely influential. As a result, the shared currency has been unable to advance much further and reach new multi-month-highs against the US Dollar.
Political news has supported the Euro slightly however. Over the last two weeks, France has held its 2017 legislative elections, which saw French President Emmanuel Macron’s ‘en Marche!’ party win a strong majority of seats.
Known fully as ‘La République en Marche’ (LREM), Macron’s centrist party has only existed for around 15 months.
Despite this, with the help of smaller centrist party Democratic Movement (MoDem) Macron was able to take around 350 seats in the election’s second round on Sunday. 289 seats are needed to win a majority in the 577-seat national assembly.
With a healthy majority, investors are now more confident that Macron will be able to implement his economic policies.
However, concerns remain about how successful Macron will be in passing some of his less popular labour reform plans, such as more flexibility in wage and working hours negotiations and less employment tax for entrepreneurs, as well as cutting certain protections and entitlements for workers.
Analysts have speculated he may use his ‘honeymoon period’ with voters to pass through his more controversial plans, though opposition from the public is likely. Concern about Macron’s obstacles have limited Euro demand this week.
According to Jennifer McKeown from Capital Economics;
‘Like many presidents before him, he is likely to face strikes and protests against planned increases in working hours and flexibility regarding pay which may force him to water his reforms down.’
US Dollar (USD) Strength Limited by Underwhelming Data
Similarly to the Euro, the US Dollar has seen mixed performance over the last week.
While the Federal Reserve hiked US interest rates as expected and indicated there could be a third interest hike before the end of the year, investors remain anxious due to recent underwhelming US data.
Most vital was last week’s US Consumer Price Index (CPI) report from May, which saw inflation come in well below expectations. The yearly inflation rate slowed to 1.9% and month-on-month inflation contracted by -0.1%.
US retail sales also came in well below expectations in May, with -0.3% month-on-month and 3.8% year-on-year.
Later in the week, the US Dollar was weakened by underwhelming US building permits and housing starts data from May, as well as Michigan’s consumer sentiment survey for June.
According to the consumer confidence report, confidence was projected to slip slightly from 97.1 to 97 in June but instead dropped to 94.5. Consumer expectations also dropped, from 87.7 to 84.7.
EUR USD Forecast: Euro US Dollar Could See Flat Trade
Amid a lack of highly influential datasets from either the Eurozone or the US for most of this week, the Euro US Dollar exchange rate is likely to trend relatively flatly and may not stray too far from the week’s opening levels.
Any developments from French President Emmanuel Macron or US President Donald Trump could influence Euro or US Dollar movement respectively, as politics remain a vital part of domestic market confidence.
Tuesday’s session will be quiet for data, besides Spain’s April trade balance update and German PPI from May. Wednesday will see the publication of US existing home sales for May.
However, most of the week’s key data won’t come in until Friday which will see Markit publish its preliminary Eurozone PMIs for June as well as growth data from The Netherlands and Germany.
Over in the US, May new home sales and preliminary PMIs from Markit will be published on Friday. This means Friday will likely see this week’s biggest movements from the Euro US Dollar exchange rate.
EUR USD Interbank Rate
At the time of writing this article, the Euro US Dollar exchange rate trended in the region of 1.1193. The US Dollar Euro exchange rate traded at around 0.8930.