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Growing Fears of European Populism Pressure EUR USD Exchange Rate

  • EUR USD Slides as Populism Fears Persist – Le Pen threatens to leave the Euro as she launches her campaign for the French elections.
  • German Factory Orders Surge – But unable to reverse the Euro downtrend.
  • US Dollar Softened by Rate Hike Predictions – Weak wage growth prompts investors to revise down chances of March interest rate rise.

The EUR USD exchange rate started the week on the back foot this morning as investors grow increasingly concerned over the rise of populism across the continent ahead of a number of key national elections.

Euro US Dollar (EUR USD) Pressured by Far-Right Fears

The Euro slipped against the US Dollar today after Marine Le Pen formally launched her presidential campaign over the weekend.

The Leader of the far-right National Front (FN) party promised to rid France of the ‘tyrannies’ of globalisation, clearly taking aim at the European Union as she spoke in Lyon on Sunday.

While most polls still predict that she will fall out of the race in the second round of the election, fresh memories of Brexit and Trump are likely to make investors a little less trusting of polling data, especially following recent rumours that have plagued her opposition.

Le Pen’s chances of gaining the Presidency have been significantly improved recently as one of her key rivals, François Fillon, who has long been the centre-right favourite now faces allegations that he used public funds to pay his wife a salary for work she never did.

Investors fear that should the FN claim victory in May then the EU could face the possibility of losing its second largest economy as Le Pen promises to hold a referendum on EU membership if she is unable to renegotiate terms.

Jump in Factory Orders Unable to Prompt a Rise in EUR

This morning’s downtrend in the Euro continued despite the release of upbeat data from Germany.

German Factory Orders surged at the end of 2016, jumping from -3.6% to 5.2%, easily sailing past expectations it would only reach 0.5% and hitting its best levels since July 2014.

The rise was supported by an uptick in domestic demand and an unexpected leap in demand from Eurozone nations, however it was not enough to prompt a recovery in the single currency as sentiment continued to be negatively affected by populist fears.

US Dollar Sentiment Weakened by Poor Wage Growth

A disappointing drop in average hourly wages in Friday’s US employment data has increased the pressure on the US Dollar this week as it decreased the odds that interest rates will be raised in March.

The odds that the Federal Reserve will hike interest rates in March fell from 20% to 12% following the labour report as wage growth and employment are seen as key indicators for Fed monetary policy.

Analysts now predict that the first rate hike of the year will come in June so long as the US economy remains robust.

EUR USD Exchange Rate Forecast: Draghi Speech Ahead

European Central Bank (ECB) President Mario Draghi will face European lawmakers later today as he faces questions on why the ECB continues its ultra-loose monetary policy despite the rise in inflation, with the EUR USD exchange rate likely to drop further if he stays committed to keeping interest rates at zero.

Meanwhile, the US Dollar may be weakened tomorrow by the release of the latest US Trade Balance report as markets predict it will show that the US trade deficit widened in December.

Current Interbank Exchange Rates

At the time of writing the EUR USD exchange rate was trending around 1.07 and the USD EUR exchange rate was trending around 0.93.