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Euro to US Dollar Exchange Rate Fails to Recover as Trade War Jitters Weigh Harder on EUR

Euro to US Dollar Exchange Rate Trends near Worst June Levels Ahead of PMI Data

Despite safe haven demand for the US Dollar (USD) easing slightly overnight and investor trade war jitters lightening slightly, the Euro to US Dollar (EUR/USD) exchange rate has been unable to recover from near this week’s worst levels.

So far this week, EUR/USD movement hast been modest when compared with last week’s sharp drop from 1.1769 to 1.1601.

EUR/USD briefly attempted to climb earlier in the week, but since Tuesday has been trending nearer a weekly low of 1.1535. This is the worst EUR/USD level since May and has been largely due to Euro (EUR) weakness.

The Euro was unable to recover against the steady US Dollar despite trade war jitters easing slightly, as reports emerged suggesting the European Central Bank (ECB) was actually very anxious indeed about the possibility of a trade war.

Euro (EUR) Exchange Rates Unappealing on European Central Bank (ECB) Speculation

While the European Central Bank (ECB) has taken an optimistic tone regarding the Eurozone’s economic outlook and predicts the next eventual monetary policy moves will be hawkish ones, the bank may not actually be that optimistic.

According to a Wednesday report, ECB officials are becoming increasingly concerned about the effects a potential trade war could have on the Eurozone’s economic recovery.

Anonymous bank sources told report Reuters that the recent protectionist rhetoric and trade tariffs from US President Donald Trump were making high ranking ECB officials concerned.

Sources even suggested that the bank’s rollback of its quantitative easing (QE) program could be affected. According to one source:

‘Protectionism will have a bigger impact than now estimated,

Unwinding ECB accommodation is also a risk. I don’t think it’s been fully priced in and markets will wake up one day.’

This kept pressure on the Euro on Thursday and made it easier for the US Dollar to hold most of its weekly gains.

US Dollar (USD) Benefits from Rising US Yields and Safe Haven Demand

There has been little change in US Dollar trade in recent sessions, as US housing data continues to come in mixed but the US economic outlook remains strong and Federal Reserve interest rate hike bets climb.

On top of this, markets have had an appetite for safe haven currencies for most of the week due to protectionism from the US government and growing fears that a US-China trade war is possible.

While US Commerce Secretary Wilbur Ross attempted to calm market jitters and this weighed on safe haven demand slightly, the US Dollar remained strong against the Euro.

US Dollar demand was supported further by stronger US Treasury bond yields, which strengthened in response to Wednesday comments from Federal Reserve Chairman Jerome Powell. According to Shusuke Yamada from Bank of America Merrill Lynch:

‘Powell’s remarks were not particularly ground breaking but it appears to have helped the dollar just as US equities are recovering after being oversold on earlier risk aversion,’

Euro to US Dollar (EUR/USD) Forecast: Eurozone Confidence and PMI Stats Ahead

US Dollar trade is likely to remain correlated to market risk-sentiment and Federal Reserve hawkishness, so unless trade jitters fade or US data disappoints the US currency could remain sturdy.

However, the Euro to US Dollar (EUR/USD) exchange rate could recover from its lows towards the end of the week if upcoming Eurozone data impresses investors.

Thursday afternoon will see the publication of the Eurozone’s consumer confidence survey projection for June. The figure is forecast to have worsened from 0.2 to -0.1.

Friday’s data will be even more influential, with Markit set to publish its June PMI projections for both the Eurozone and the US.

Markit’s Eurozone PMIs are forecast to have slowed even more from May’s figures, with the US composite PMI also forecast to slow.

If the Eurozone PMIs happen to beat expectations, this would bolster Eurozone growth hopes and the Euro to US Dollar (EUR/USD) exchange rate could advance from its worst levels.