Euro to US Dollar Exchange Rate Recovers Despite Italian Political Jitters
Despite what some analysts are calling a political crisis in Italy, the Euro to US Dollar (EUR/USD) exchange rate rebounded from its worst levels on Wednesday morning. Markets sold the US Dollar (USD) in anticipation of key upcoming US growth data.
Since opening this week at the level of 1.1657, EUR/USD has been highly volatile due to political developments in the Eurozone.
EUR/USD briefly touched on a low of 1.1514 on Tuesday, which was the pair’s worst level in 10 months. On Wednesday however, EUR/USD recovered slightly and trended closer to the level of 1.1600 at the time of writing.
While the Eurozone’s political outlook hasn’t exactly improved in the last day, some solid Eurozone ecostats have bolstered demand for the Euro (EUR).
On top of this, concerns that US growth will have slowed down made it difficult for the US Dollar to hold its best levels against the Euro.
Euro (EUR) Exchange Rates Supported by Domestic Data amid Italian Political Concerns
After an attempted Italian coalition government between the League party and 5-Star Movement fell through over the weekend, Italy’s President and temporary Prime Minister have indicated that Italy could see fresh elections by early 2019.
Investors are perceiving wide risks in Euro trade, amid concerns that the next elections could lead to populist stances and parties only growing even more popular.
Some analysts are calling it a political crisis, and market bets that an ‘Italexit’ could happen have jumped to over 10% this week – from just 3%.
Despite this broad uncertainty, the Euro has been boosted slightly from its worst levels thanks to some supportive Eurozone data on Wednesday morning.
German retail sales were mixed, with the yearly figure unexpectedly slowing to just 1.2% in April. However, the month-on-month result jumped to 2.3%, well above the forecast 0.7%.
On top of this, Germany’s unemployment rate unexpectedly improved from 5.3% to 5.2% in May, the lowest on record since Germany’s reunification in 1990.
The Eurozone’s May confidence results were mixed. While consumer confidence fell to just 0.2 as expected, business confidence unexpectedly improved from 1.35 to 1.45 in May.
US Dollar (USD) Exchange Rates Slip Ahead of Key US Ecostats
Markets have remained optimistic about the US economic outlook over the past week and the US Dollar has been driven even higher by hopes for diplomacy between the US and North Korea.
However, the US Dollar has been unable to hold its best levels against a weakened Euro as investors are anticipating major US data due for publication through the end of the week.
The Federal Reserve took a surprisingly cautious tone in its latest meeting minutes report.
As a result, markets are anxious that a few major misses in US data could cause the bank to move away from potentially hiking US interest rates as many as four times total in 2018.
US growth is forecast to have slowed in Q1, and concerns that it could slow even more than expected are leaving US Dollar traders on edge this morning.
Euro to US Dollar (EUR/USD) Forecast: Eurozone Politics Remain in Focus
While a slew of major Eurozone and US ecostats will be published by the time the week is out, the Euro to US Dollar (EUR/USD) is still more likely to be influenced by Eurozone political developments for the remainder of the week.
For example, even if upcoming Eurozone data continues to impress investors, it may be difficult for EUR/USD to recover to the week’s opening levels – let alone make any advances.
Markets will watching carefully for developments in Italian politics – though it appears increasingly unlikely that a permanent government will be formed without another election.
Concerns of rising Euroscepticism in Italy are therefore likely to continue to weigh heavily on the Euro. Investors will also be anxious about the possibility that Spanish Prime Minister Mariano Rajoy could see a vote of no confidence on Friday.
Essentially, there doesn’t seem to be much chance of Euro to US Dollar exchange rate gains this week.
Still, it’s worth keeping an eye on upcoming ecostats regardless. Eurozone inflation and unemployment could be influential to the Eurozone’s economic outlook on Thursday, and US Non-Farm Payroll data will be published on Friday.
If US data comes in well below expectations and has a negative effect on the US economic outlook, this could be one of the best chances of an EUR/USD recovery.