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EUR to USD Exchange Rate Tumbles as US Dollar Recovery Continues

February 7, 2018 - Written by Ben Hughes

While the Eurozone’s economic outlook remains strong, the Euro to US Dollar exchange rate has weakened in recent sessions. A stronger US Dollar has been able to recover more easily thanks to fresh uncertainties about Germany’s finance minister and the Eurozone’s growth outlook.

Could this lead to the first weekly drop for EUR/USD this year? Since opening this week at the level of 1.2460, EUR/USD has tumbled and trends around a cent lower. On Tuesday the pair briefly touched on a low of 1.2320 but trended near those lows again on Wednesday afternoon.

EUR Weighed by Uncertainty over Germany’s Finance Minister

The Euro has been weighed by longer-term concerns this week and recent Eurozone ecostats have failed to impress investors. This has made it easier for the US Dollar to recover from its recent lows versus the shared currency.

On Wednesday it emerged that German Chancellor Angela Merkel’s CDU Party was very close to completing a deal for a ‘grand coalition’ with the opposition SPD Party.

While this would be typically Euro positive news, there was a caveat which caused some uncertainty in markets.

Reports indicated that the SPD Party would be taking charge of the finance minister role as part of the CDU’s concessions to forming a coalition.

Investors had speculated that the new finance minister could be none other than the SPD Party’s leader, Martin Schulz. However, reports have since emerged current mayor of Hamburg, Olaf Scholz, in on track to get the role instead.

This caused market uncertainty over the future of the key finance minister role. According to Soeren Hettler from DZ Bank;

‘There was speculation that Mr Schulz could be the next finance minister,

(In that scenario), Germany could be more flexible with regard to its financial situation and spend more money.

Now we have some uncertainty and have to wait until things are clear,” he added. “For the euro, this is the most important thing ... The finance minister is the second-most important for the government.’

The latest Eurozone data has had little impact on Euro trade. Wednesday saw the publication of Italy’s December retail sales results which were slightly better than expected, as well as December’s German industrial production results which came in with a disappointing -0.6%.

USD Strengthens as US Market Uncertainty Cools

US markets had a bumpy start to the week, with the Dow Jones Industrial Average market index plunging from its best levels on Monday.

However, analysts have largely called the suddenly drop in stocks a ‘correction’ rather than a selloff and the index’s movement since Tuesday has been more mixed.

This has indicated to investors that the selloff was short lived. Economists are still generally optimistic about the US economic outlook, making the US Dollar an appealing buy overall.

On Wednesday, Federal Reserve official William Dudley played down sudden bump in stocks movement too, saying it ‘wasn’t that big a bump in the equity market’.

‘The stock market had a remarkable rise over a very long time with extremely low volatility,

My outlook hasn’t changed just because the stock market’s a little bit lower than it was a few days ago. It’s still up sharply from where it was a year ago.’

EUR/USD Forecast: German Trade Stats Ahead

The Euro to US Dollar exchange rate could be influenced by some Eurozone and US data before the end of the week.

Thursday will see the publication of Germany’s trade balance results from December, as well as the European Central Bank’s (ECB) latest economic bulletin.

The day’s US data will include the latest jobless claims, and Federal Reserve officials including Kaplan and Harker will be holding speeches. US wholesale inventories data will be published on Friday.

As these upcoming ecostats are unlikely to be hugely influential, it’s possible that the Euro to US Dollar exchange rate will be more influenced by German political news and comments from Federal Reserve officials in the coming days.

Failing that though, Euro to US Dollar exchange rate investors are likely highly anticipating next week’s Eurozone growth and US inflation stats.
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