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EUR/USD Exchange Rate Ticks Higher Following Friday’s Stock Market Bounce

Uptick in Stocks Prompts EUR/USD to Strengthen

The Euro US Dollar (EUR/USD) exchange rate is edging higher this morning as Friday’s bounce in equity markets prompts investors to reduce their positions in the US currency.

At the time of writing EUR/USD is up by around 0.2% this morning, although is still a long way off recouping last week’s losses.

US Dollar (USD) Muted as Risk Appetite Returns

The US Dollar has found itself subdued this morning as a rebound in stock markets at the end of last week leaves investors feeling confident enough to reverse their positons in USD.

While uptick in risk appetite has mainly benefited high-yield currencies such as the Australian Dollar and Canadian Dollar, the sell-off of the US Dollar also helped EUR/USD to trend higher.

The US Dollar enjoyed significant gains last week amid fears of a stock markets collapse, with investors flocking to the relative safety of USD, partially unwinding their bets of a stronger Euro in the process.

However with many observers suggesting that equity markets may suffer further volatility, the US Dollar is likely to recoup its losses as the week goes on.

Euro (EUR) Gains Trimmed by German Coalition Uncertainty

The Euro meanwhile has been undermined somewhat this morning as markets react to latest developments in the formation of a new German coalition government.

More than four months after the general election, it still remains unclear whether the Eurozone’s latest economy is any closer to forming a new government, despite the announcement that the CDU and SPD had outlined the terms of a deal late last week.

The deal is still yet to be put before members of the SPD and has been complicated following SPD leader Martin Schulz acceptance of a ministerial position.

While Schulz later relinquished his position following criticism from within his party, it has left some SPD members threatening to vote against the coalition agreement.

EUR/USD Forecast: US Inflation Figures in Focus

Looking to the week ahead, the EUR/USD exchange rate may jump on Wednesday as the US publishes its latest Consumer Price Index (CPI).

Economists forecast the index will reveal that headline inflation slumped from 2.1% to 1.9% last month and that core inflation will have dipped from 1.8% to 1.7%.

With inflation in the US remaining stubbornly low it is likely to dampen speculation that the Federal Reserve may implement its next rate hike in March.

Meanwhile the Euro may strengthen this week as the Eurozone’s latest GDP reading is expected to confirm that the bloc enjoyed stellar growth in 2017.

However possibly denting the single currency will be the release of the Eurozone’s latest industrial production figures, which analysts predict will show that factory output slowed from 1% to 0.2% in December.