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Euro to US Dollar (EUR/USD) Exchange Rate on Track for Sixth Week of Losses despite USD Weakness

Euro to US Dollar Exchange Rate Struggles to Advance Amid Italian Political Jitters

Market uncertainties about how Italy’s new populist government may unfold have weighed heavily on the Euro to US Dollar (EUR/USD) exchange rate this week, despite broad US Dollar (USD) weakness since Monday.

EUR/USD opened this week at the level of 1.1773. The pair briefly climbed to a high of 1.1825 on US Dollar weakness, but slumped later in the week.

EUR/USD hit a six-month-low of 1.1680 on Wednesday and trended closer to the level of 1.1715 towards the end of the week.

The Euro (EUR) has been unable to capitalise on the US Dollar’s weakness, despite trade jitters and perceived caution from the Federal Reserve causing the US currency to slip against some other majors, like the Australian Dollar (AUD)

This has been due to political uncertainties. This week has seen Italy’s President essentially accept a proposed coalition government between Italy’s two populist parties.

Euro (EUR) Exchange Rates Slump as Italian Political Outlook Fills With Uncertainties

This week saw Italian President Sergio Mattarella accept a proposal from a coalition between the League party and 5-Star Movement party on their picks for who should be Italy’s next Prime Minister.

Political novice Giuseppe Conte was picked to be Italy’s next PM and will be putting together a government cabinet over the coming days.

Conte, a law professor from Florence, has no notable political experience. His administration will revolve around the League and 5-Star Movement coalition – a coalition between two populist parties.

As both parties have expressed Euroscepticism in the past, investors are anxious that these stances could appear again with the parties in power.

Markets are also anxious about Italy’s debt outlook, as the parties have indicated they wish for billions of Euros of bonds bought by the European Central Bank (ECB) to be scrapped in order to lower Italy’s debt.

On top of political uncertainties, the latest Eurozone data has not been particularly impressive either.

Friday saw the publication of Germany’s May business confidence figures, which fell short of forecasts in business climate and expectations prints.

This followed underwhelming consumer confidence stats earlier in the week, which indicated that confidence in the Eurozone’s economy was worsening.

US Dollar (USD) Exchange Rates Fail to Capitalise on Euro Weakness amid Selloff

Following a broad US Dollar rally that lasted over a month, investors took a breath on the US currency this week.

Initially, the US Dollar was sold on profit taking. However, later in the week trade uncertainties and perceived caution from the Federal Reserve left the US Dollar unappealing. US data has been mixed, too.

Confidence in US geopolitics and trade worsened, following reports that US President Donald Trump was not satisfied with US-China trade talks. Trump also cancelled a planned summit between the US and North Korea.

The Federal Reserve has expressed concern about how global trade uncertainty could negatively impact US businesses, and indicated it was willing to allow US inflation to temporarily reach above targets rather than rush to increase the pace of US interest rate hikes.

Euro to US Dollar (EUR/USD) Forecast: Eurozone Inflation and US Growth in Focus

Next week will be a major one for Eurozone and US ecostats. In the absence of major political or trade developments in the Eurozone or US, data due in the latter half of the week is likely to influence EUR/USD instead.

Wednesday will see the publication of a surge of major ecostats. This will include retail sales, unemployment and inflation figures from Germany, business confidence from the Eurozone, and growth projections from the US.

Thursday will follow with another slew of important figures, including May inflation projections for France and the Eurozone as a whole. The Eurozone’s May inflation projection could be the most important data of the week for Euro investors.

Some US inflation figures will be published on Thursday too, Personal Consumption Expenditure (PCE) stats from April. As these are the Federal Reserve’s preferred measure of US inflation, they could prove influential.

Friday will round out the week with Eurozone and US manufacturing PMIs from May, as well as the May US Non-Farm Payroll report.

Next week could be a data-driven week for Euro to US Dollar (EUR/USD) exchange rate traders, but developments in Italian politics and US diplomacy will continue to have an important impact on trade too.