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Trump Protectionist Speech Prompts Rally in EUR USD Exchange Rate

  • EUR USD Gains on Trump Speech – Markets dismayed by Trump’s first speech as US President.
  • Draghi Letter Weighs on Euro – ECB President sets out central bank conditions for leaving the Eurozone.
  • German PMIs Ahead – Rise in services may prompt further appreciation of single currency.

The EUR USD exchange rate reached a new monthly high this morning as investors were unimpressed by Donald Trump’s speech at his inauguration as the 45th president of the United States.

Trump Concerns Underpin Rise in Euro US Dollar (EUR USD)

The Euro continued to climb against the US Dollar at the start of this week’s session as Trump’s first speech as US President did little to address market uncertainty surrounding his ambitious stimulus plans.

Instead the new President used his inauguration speech to outline his protectionist agenda with comments such as ‘buy American and hire American’ causing concerns that the new administration could hurt the US economy by closing itself off. As economists at UniCredit explained;

‘Our take on Mr Donald Trump’s inauguration address on Friday is that it appeared combative, protectionist and divisive in many respects. Consequently, we think that the downward trend in the Dollar that has recently emerged is likely to extend further.’

Trump’s election victory last year was initially met positively by investors as they were upbeat about his plans for aggressive infrastructure spending and culling business regulations.

However Trump’s reluctance to outline his policy plans has weighed heavily on the US Dollar in recent weeks. Something that was not helped by his administration, as it spent much of its first weekend arguing with the press about the attendance at Trump’s inauguration rather than laying outs its roadmap for his first term as president.

Euro Pressured by Draghi Letter

The Euro rise this morning was softened slightly following a letter released late last week from European Central Bank President Mario Draghi to two members of the European Parliament.

The letter, which was addressed to two Italian lawmakers, outlined the ECB’s conditions in the event that a member wishes to leave the European Union, saying;

‘If a country were to leave the Eurosystem, its national central bank’s claims on or liabilities to the ECB would need to be settled in full.’

The letters have led to speculation that the central bank is preparing for more members to leave the EU, with the rise of populism and growing Euroscepticism in Italy making it a possible candidate to follow the UK out of the union.

EUR USD Exchange Rate Forecast: German PMIs Ahead

The EUR USD exchange rate may rise on Tuesday if Germany’s latest PMI data shows some improvement in January. Markit is expected to report that Germany’s Services PMI rose from 54.3 to 54.5 at the start of the year, however predictions that its Manufacturing figures could dip slightly from 55.6 to 55.4 could possibly mute any gains from the services report.

Tomorrow could see the US Dollar fall even further if US Home Sales drop as expected in December, with analysts forecasting that sales slumped from 5.61m to 5.5m.

Meanwhile investors will be focused on Trump’s self-proclaimed ‘first day’ as president later today as they hope that there will be at least some kind of outline on how he plans to implement his infrastructure plans and fulfil his campaign promise to create thousands of jobs.

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.