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Merkel Rebuffs Claims from Trump Trade Advisor, Drives EUR USD Exchange Rate Higher

  • EUR USD Jumps Following Remarks – Trade Advisor accuses Germany of manipulating currency to gain advantage over partners.
  • Eurozone Manufacturing Explodes – Euro rises as factories post impressive data in January.
  • Fed Meeting May Strengthen US Dollar – Investors hope Yellen will hint towards future rate hike in March.

The EUR USD exchange rate rocketed up by around a cent on Tuesday as a top trade advisor to Donald Trump accused Germany of currency manipulation.

Euro US Dollar (EUR USD) Rises Following Comments from Navarro

The Euro leapt to an eight-week high against the US Dollar yesterday following comments from the head of Trump’s new National Trade Council, Peter Navarro.

In an interview with the Financial Times Navarro accused Germany of manipulating the common currency in order to keep it ‘grossly undervalued’ and of using it as an ‘implicit Deutsche Mark’ to exploit the US and other members of the Eurozone.

German Chancellor Angela Merkel quickly rebuffed the comments, responding;

‘Germany is a country that has always called for the European Central Bank to pursue an independent policy, just as the Bundesbank did that before the Euro existed. Because of that we will not influence the behaviour of the ECB. And as a result, I cannot and do not want to change the situation as it is.’

The comments were highly unusual, especially from a top trade adviser to the president, but could tie in with remarks recently made by Trump in which he blamed the US Dollar for being ‘too strong’, crippling the ability of US companies to be globally competitive.

It also sets the tone that the new administration may be looking to go on the offensive in tackling its higher exchange rate, creating more confusion for markets as it would be at odds with Trump’s plans to impose tariffs, something that would likely drive the ‘Greenback’ higher.

Manufacturing Data Bolsters Single Currency

The Euro was also strengthened by some upbeat Manufacturing data this morning as members across the bloc released their latest figures.

Both France and Spain reported a better than expected rise in January as their indexes rose from 53.5 to 53.6 and 55.3 to 55.6 respectively.

Germany’s manufacturing actively also performed well in January as it surged from 55.6 to 56.4, although this was slightly short of expectations of 56.5 it was not enough to hinder the overall Eurozone reading, which climbed from 54.9 to 55.2.

EUR USD Exchange Rate Forecast: US Federal Reserve to Meet this Evening

The EUR USD exchange rate may retreat later today if the Federal Reserve hints towards future rate hikes when gathering for its first policy meeting of 2017.

While the Fed is not expected to raise interest rates at today’s meeting, investors are speculating that Fed Chair Janet Yellen may hint towards a rate rise in March, after the central bank forecast that there could be up to three rate hikes in December’s  meeting.

Meanwhile the Euro may falter on Thursday morning following the release of employment data from Spain, with analysts expecting the number of registered unemployed to increase by 60.2k in January after falling by 86.8k the month before.

Investors will also be looking to Mario Draghi’s speech in Ljubljana tomorrow afternoon as they hope the European Central Bank (ECB) President will mention the Bank’s quantitative easing programme, with any mention of tapering following the surge in Eurozone inflation likely to drive the single currency higher.

Current Interbank Exchange Rates

At the time of writing the EUR USD exchange rate was trending around 1.08 and the USD EUR exchange rate was trending around 0.92.