EUR/USD Dips after French Integration Plans Called into Question

May 21, 2018 - Written by Tim Boyer

STORY LINK EUR/USD Dips after French Integration Plans Called into Question

Last week, the Euro to US Dollar exchange rate opened in the region of 1.1962 on Monday and closed down lower around 1.1787.

This deterioration on the Euro’s part was twofold, with poor economic data and political uncertainty lowering demand for the single currency.

Eurozone data showed slowing GDP growth and lower inflation, two factors that were expected to increase the wait before any Bank of England (BoE) monetary policy tightening.

On the political front, Euro traders were alarmed by some of the policy plans unveiled by the two parties aiming to form a coalition government in Italy.

The issues were mainly financial, with plans to embark on a spending spree gaining the most attention.

Other proposals have included asking the European Central Bank (ECB) to cancel €250bn of Italian government debt, along with cutting taxes and boosting welfare spending.

Reflecting the populist sentiment behind both potential coalition partners, there were also plans to renegotiate how much Italy pays the European Union a part of its budget contributions.

Last week’s US Dollar gains were mainly caused by rising oil prices; these in turn were triggered by President Donald Trump’s decision to withdraw the US from the Iran nuclear deal.

Higher oil prices were seen as a continuing benefit to US oil exporters, despite the risk of consumers facing sharp rises in fuel costs.

Federal Reserve policymakers gave a mixed forecast; Robert Kaplan suggested that US employment has reached capacity, but Loretta Mester maintained a cautious approach.

Scepticism about Macron’s EU Integration Plans Drag EUR/USD Exchange Rate Down

The Euro has slipped against the US Dollar today, following signs that French President Emmanuel Macron could face difficulty in his efforts to increase Eurozone integration.

Mr Macron has attempted to get German Chancellor Angela Merkel on board with his plans, but Mrs Merkel has reportedly been reluctant to fully commit to the measures.

The wider concern is that while these proposals could improve the stability of the Eurozone, they may not combat populism and anti-EU sentiment among EU governments.

USD/EUR Exchange Rate Rises as US-China Trade ‘Truce’ Reported

The US Dollar to Euro (USD/EUR) exchange rate has risen today, thanks to a supportive development in US-Chinese trade talks.

US Treasury Secretary Steven Mnuchin has reported that the trading conflict between the two nations has been put ‘on hold’, with the Chinese government planning to buy US goods.

This is seen as a de-escalation measure, as by buying US goods the Chinese government hopes to avoid stinging tariffs against its goods being exported to the US.

It should be noted that economists do not believe that this represents a permanent solution to US-Chinese hostilities, but is still seen as an improvement on the situation compared to previous weeks.

US Director of the National Economic Council Larry Kudlow has voiced these conclusions, stating:

‘The details will be down the road. These things are not so precise.

‘There's no agreement for a [lasting] deal. We never anticipated one. There's a communique between the two great countries, that's all.

‘And in that communique, you can see where we're going next.’

EUR/USD Exchange Rate Forecast: Will Eurozone PMI Slowdown Trigger Euro to US Dollar Losses?

The Euro (EUR) is at risk of falling further against the US Dollar (USD) on Wednesday, when Eurozone PMI and confidence data is released.

Eurozone composite, manufacturing and services sector PMI estimates are tipped to show a slowdown during May, which could lower confidence in the Euro.

Although the forecast PMI declines aren’t massive, anxious Euro traders may still react negatively to the news.

Later on Wednesday there will also be the release of a Eurozone consumer confidence flash for May, which some economists believe will show a slowdown from 0.4 points to 0.1.

Wednesday’s US economic data might be more supportive, when Federal Reserve minutes are released in the evening.

Covering May’s meeting of Fed policymakers, the minutes may hint at a US interest rate hike in the coming months.

USD traders believe there will be at least two more US interest rate hikes in 2018, but with only five meetings left this year time is running out.

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TAGS: Euro Forecasts