Euro US Dollar (EUR/USD) Exchange Rate Rises, Italian Election in the Spotlight
The Euro US Dollar (EUR/USD) exchange rate posted a minor recovery on Tuesday, unperturbed by the political situation in Italy and gaining as investors took profit on the ‘Greenback’.
Italy’s leading Anti-establishment Five Star Movement and the League have now named Lawyer and political newcomer Giuseppe Conte as their pick for Italy’s next leader, with Italy’s current president now in talks to approve the decision.
This decision comes after weeks of intense negotiations between League and the Five Star Movement, and should put the pair even closer to successfully achieving coalition leadership.
This is, however, a point of contention for Euro investors, with many economists concerned that the parties’ calls for sweeping fiscal changes and a confrontational attitude towards Brussels might harm the Italian economy.
The Euro, however, climbed regardless, as it appears that neither party is directly pushing to exit the bloc.
Investors Take Profit on US Dollar (USD) – ‘Greenback’ Exchange Rate Rally Slows
The US Dollar (USD) fell backwards on Tuesday as investors took profit on its extended rally.
Optimism is generally rather high, with improving US-China trade relations and the current hawkish stance of the US Federal Reserve continuing to keep the ‘Buck’ on solid form.
Nonetheless, a slightly pessimistic economic forecast from Goldman Sachs may have assisted in today’s correction.
Jan Hatzius, Chief Economist at the bank, warned that an increase in government debt could threaten the economy if there is another recession.
Mr Hatzius stated:
‘An expanding deficit and debt level is likely to put upward pressure on interest rates, expanding the deficit further. While we do not believe that the US faces a risk to its ability to borrow or repay, the rising debt level could nevertheless have consequences long before debt sustainability becomes a major obstacle’.
This outlook is not expected to limit the ‘Greenback’ for very long, however, with tomorrow’s US Federal Open Market Committee (FOMC) minutes expected to provide yet another boost.
Euro US Dollar (EUR/USD) Exchange Rate Forecast: Eurozone PMI Readings on the Horizon
Tomorrow will feature a range Markit purchasing managers’ index (PMI) readings for the bloc, with May’s results expected to provide insight into whether the Q1 slowdown was simply a blip, or evidence of a trend.
Investors currently expect the composite reading to hold strong at 55.1 – a robust score – but any unexpected contractions could quickly end the Euro’s climb.
Do not forget; the European Central Bank (ECB) is still regarded as extremely dovish compared to the US Federal Reserve, and any evidence of a slowing economy could push the central bank towards extending their bond-buying measures into next year.
Beyond this, the US FOMC minutes will also be a major driver, with any hawkish indications liable to give USD the upper hand once more.