- Euro (EUR) Throttled by EU Uncertainty – Euroscepticism rises following Brexit
- Market Seeks out ‘Safe-Haven’ Currencies – US Dollar gains against many majors
- Fed Hike Rate Bets Drop after #EURef – Federal Reserve expected to be cautious
- Update: Draghi’s Speech Fails to Move Markets – Euro bought from cheap lows
- Forecast: US Dollar to Remain in Favour – ‘Safe-haven’ demand likely to continue
Euro US Dollar Exchange Rate Recovers Slightly on Calmer Market Day
After two solid days of frantic Brexit-related trading, markets cooled slightly on Tuesday and investors took the opportunity to buy the throttled Pound and Euro currencies from their lows.
While favour towards the US Dollar remained strong, the cheap price of the Euro after its plummets gave it limited appeal on Tuesday.
The calm in the market is largely due to the uncertainty in Britain being largely unchanged since Monday’s session. Central banks have also been largely silent, with ECB President Mario Draghi’s brief Tuesday speech having very little indication about future ECB policies or a Brexit’s effects.
Markets are most likely to focus on the actions of central banks going forward, as well as speculation on when Britain will activate Article 50 and begin to formally withdraw from the EU. At the time of writing, EUR/USD trended in the region of 1.1046, having recovered slightly from its worst levels.
Given that major European leaders are demanding that the UK invokes Article 50 as soon as possible in order to trigger formal negotiations, the nation’s hunt for its next Prime Minister may have to begin sooner rather than later.
(Previously update 09:00 28/06/2016)
Will Draghi’s Speech Boost the Euro US Dollar Exchange Rate Today?
The Euro US Dollar exchange rate recovered 0.5% on Tuesday ahead of a speech from European Central Bank (ECB) President Mario Draghi.
If Draghi appears confident that the impact of the UK Brexit on the Eurozone can be limited, the Euro could advance further on the ‘Greenback’ as trading continues.
The EUR/USD exchange rate is currently trending in the region of 1.1073.
(Previously updated 27/06/2016)
The Euro US Dollar exchange rate (EUR/USD) continued its decline on Monday morning after plummeting on Friday following the news that Britain would be leaving the European Union. The strong appeal of ‘safe-haven’ currencies in the currently turbulent forex market also helped the ‘Greenback’ gain.
On Friday, EUR/USD fell from a monthly high of 1.1422 to its lowest point since March, 1.0949. Since then, the pair has recovered slightly to rest at 1.11180 over the weekend, but has slipped back towards its lows again since markets opened on Monday. The pair currently trends in the region of 1.1066.
Euro (EUR) Loses Appeal as Eurozone Future Remains Uncertain following EU Referendum
The Euro has dropped against many of its rivals, particularly safer ones, following the news that the United Kingdom has voted to ‘Leave’ the European Union.
Of course, while EUR/USD has lost out, the Euro to Pound exchange rate has strengthened, with GBP dropping to multi-year lows.
In the view of FX strategist Oliver Harvey: ‘The UK’s record current-account deficit means the currency is the in the worst possible position for the severe slowdown in capital inflows that will result from uncertainty generated.’
With the European Union set to lose one of its most influential members, the Eurozone has begun to feel the strain that other nations may follow.
According to The Independent, various far-right groups throughout the European Union, including in many Eurozone nations, have celebrated Britain’s result and hope for a Referendum in their own nation.
Populist right-wing leaders in France and the Netherlands lost no time yesterday in demanding “in-out” votes in two of the European Union’s founding member states. Similar demands are likely in Denmark and, maybe, Sweden. Although nothing obliges existing governments to give way to this pressure, the British vote seems certain to make exit referendums a central issue in French and Dutch elections next year.
The Euro’s association with the Pound has also influenced weakness in the shared currency. Many investors now expect emergency easing measures to be announced by the European Central Bank (ECB) in order to prevent the Eurozone from weathering further damage in the ‘Brexit’ fallout.
US Dollar (USD) Appetite Rises as Investors Seek ‘Safe-Havens’
The US Dollar gained considerably against European currencies following the news that Britain would be leaving the EU.
Many investors had previously priced in a win for the ‘Remain’ campaign, but when these bets fell through, the appeal of risky currencies plummeted and investors sought safer currencies like the US Dollar to help protect their investments.
Unfortunately, economic news for the US Dollar hasn’t been entirely positive, with the ‘Brexit’ news having sent shockwaves across the globe. The Financial Times reports;
‘The UK’s vote to leave the EU has already significantly damped expectations for monetary tightening by the Federal Reserve as policymakers warn of possible repercussions for the US economy from market turmoil. Futures trading now suggests the US central bank will hold short-term rates for at least the rest of the year, while some market participants have raised the possibility of the Fed reversing last December’s quarter-point rise.’
Friday’s data was also underwhelming for US investors. The key durable goods orders report came in at -2.2% in preliminary figures, letting down an expected score of -0.5%.
Euro US Dollar Exchange Rate Forecast: Central Banks in Focus Following Brexit Decision
With confirmation that Britain will be gearing up to exit the European Union, eyes around the world have turned towards major central banks. Markets eagerly await what plans are in store from the European Central Bank (ECB) and the Federal Reserve.
A potentially pivotal event is due to take place on Wednesday, according to MarketWatch;
‘Federal Reserve Chairwoman Janet Yellen, European Central Bank President Mario Draghi and Bank of England Gov. Mark Carney are all due to be in the Southern European nation for a conveniently timed central banking event. All three are scheduled to speak on a panel on Wednesday.
What happens next in light of the British decision to leave the European Union is the big question for all three.’
News on how the banks intend to minimise the damage caused by the Brexit news is something many economists expect to be answered.
However, it is likely that the Euro will continue to drop against the US Dollar regardless of central bank news, due to the Euro’s ties with Britain and the European Union.
Monday afternoon sees the release of preliminary June US Services and Composite PMIs, but these are not expected to considerably sway the EUR/USD exchange rate.
The Euro US Dollar exchange rate (EUR/USD) currently trends in the region of 1.1070, while the US Dollar Euro exchange rate (USD/EUR) trades at around 0.9033.