USD to EUR Exchange Rate Tumbles on Hawkish Merkel, Strong Eurozone Data

Modified: Tuesday, 23 May 2017 11:05 BST - Written by Frank Davies

STORY LINK USD to EUR Exchange Rate Tumbles on Hawkish Merkel, Strong Eurozone Data

Demand for the US Dollar has been limp in recent weeks which has led to easy gains for the Euro. As a result, the US Dollar to Euro exchange rate dropped on Monday as the shared currency was bolstered by hawkish comments from German Chancellor Angela Merkel.

Last week saw significant losses for USD/EUR as the pair fell from 0.9149 to 0.8925. The pair has only continued to fall and on Tuesday morning hit a low of 0.8878 – its lowest level since the beginning of September 2016.

The US Dollar hasn’t seen much market appeal in the last week. While market jitters surrounding US President Donald Trump have cooled slightly, there has been little reason to buy up the ‘Greenback’ again either.
Last week the US Dollar was undermined by a series of controversies related to Trump and Russia, as well as Trump’s firing of ex-FBI Director James Comey. Some critics perceived the Comey firing to amount to obstruction of justice, which lit speculative talks of ‘impeachment’.

However, a US President has never been impeached before and a Republican-controlled Congress is likely to stand behind its President, especially as long as the core Trump voter-base remains intact. As a result, ‘impeachment’ concerns quickly faded over the weekend.

Uncertainty remains high though. US data has been mixed and bets of a June Federal Reserve interest rate hike still haven’t returned to above 80%.

The Euro, on the other hand, has had good week after good week since the election of new French President Emmanuel Macron.

Eurozone leaders such as Germany’s Merkel and Italy’s Gentiloni have joined Macron’s calls for greater European Union cooperation and a stronger Eurozone, bolstering market appetite for the shared currency.
German Chancellor Angela Merkel stated to a school of children in Berlin that the Euro was ‘too weak’ due to European Central Bank (ECB) policy. The hawkish statement was the primary reason for the Euro’s Monday strength.


Tuesday followed with a slew of optimistic Eurozone data, including preliminary May PMIs from Markit for France, Germany and the Eurozone as a whole.

Most notably, Germany’s manufacturing PMI is now projected to jump from 58.2 to 59.4 rather than slipping to 58. The Eurozone’s overall composite PMI is projected to remain at 56.8 despite being forecast to fall to 56.6.
Ifo’s German business sentiment surveys also beat expectations. Business climate improved from 113 to 114.6 despite being expected to print at 113.1.

With the Eurozone’s PMIs now published, market focus this week is likely to shift towards political developments. Any developments in Trump news will be the primary influence of the US Dollar.

Tuesday’s US new home sales and Wednesday’s US existing home sales results have the potential to influence the US Dollar and Wednesday’s German consumer confidence survey from GfK could influence the Euro.

Central bank news also has the potential to affect USD/EUR movement. Wednesday will see ECB President Mario Draghi hold a speech, as well as the Federal Reserve’s latest meeting minutes publication.

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TAGS: Dollar Pound Forecasts Euro Forecasts