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Euro US Dollar (EUR/USD) Exchange Rate Flat Ahead of Draghi’s Final ECB Meeting

October 23, 2019 - Written by John Cameron

Euro US Dollar (EUR/USD) Exchange Rate Muted Ahead of ECB Rate Decision

The Euro US Dollar (EUR/USD) exchange rate was left flat and the pairing is currently trading at around $1.1111.

The single currency edged lower on Wednesday and was left under pressure ahead of Thursday’s European Central Bank (ECB) meeting.

This week’s monetary policy meeting is outgoing President Mario Draghi’s final meeting, and while no major policy announcements are expected, the divisions within the central bank could be highlighted.

The unprecedented split between policymakers who oppose the new bond purchases could cause EUR to fall as this threatens the effectiveness of monetary policy.

While markets believe the bank’s room for maneuver is limited, it is now an issue for Draghi’s successor, Christine Lagarde.

Commenting on this, senior European economist at Societe Generale, Anatoli Annenkov said:

‘From Draghi’s point of view, he will say the discussions are important and there are differences but as long as there is a majority in favour, those policies are carried out.

‘What is more important is the take of the next ECB president on the divisions but we’ll have to wait for her to take office to know that.’

Euro (EUR) Left Flat as Boris Johnson Awaits EU Delay Decision

Meanwhile, the Euro was left muted against the US Dollar after British MPs forced a delay to Boris Johnson’s plans of leaving the EU by the end of the month.

Increased Brexit uncertainty weighed on the single currency, and European Union Council President Donald Tusk noted he would recommend EU leaders back an extension to Article 50.

RBC Capital Markets’ strategist, Adam Cole noted that Brexit was driving a ‘general risk-off tone’ and ‘things could change very quickly today, depending on the EU response’.

Cole also added that he did not see ‘much downside’ risk now that a no-deal was off the table.

US Dollar (USD) Left Flat on US-EU Trade Comments

The single currency was left muted against the US Dollar after US Commerce Secretary Wilbur Ross said new negotiations with the EU could be an alternative to tariffs.

Speaking to the Financial Times, Ross discussed the options being considered by Trump and said:

‘One [option] would be to say ‘I’m just not going to do anything’, the second would be to impose tariffs on some or all [countries] […] the third might be some other form of negotiation.’

Meanwhile, commenting separately on the US-China trade negotiations, Ross said Beijing was following through ‘in good faith’ on their promises to go ahead with large farm purchases of US farm products which likely provided USD with a slight upswing of support.

Euro (EUR) Muted as French Industry Morale Slides to Four-and-a-Half Year Low

Meanwhile, trade tensions between the US and EU caused France’s industry morale to fall unexpectedly in October to a four and a half year low.

Morale slumped to its lowest level since early 2015 which left the single currency under pressure on Wednesday.

Up until this point, France has resisted the slowdown that hit the bloc’s largest economy.

However, after Washington prepared to hit EU goods with tariffs, France was dragged into the middle of global trade tensions.

Commenting on this, senior fixed income manager at RAM Active Investments, Gilles Pradere said:

‘The trade war is clearly weighing on business sentiment, and the new tariffs against some French products are a negative in that respect.

‘But there are certainly other factors at play such as the transition in the auto sector due to new regulations and a slowing Chinese economy.’

Euro US Dollar Outlook: Will Weak Consumer Confidence Weigh on EUR?

Looking ahead to this afternoon, the US Dollar (USD) could edge up against the Euro (EUR) following the release of the US house price index.

If house prices rise higher than expected in August, it could provide the ‘Greenback’ with an upswing of support.

Meanwhile, the single currency could slide following the release of the Eurozone’s flash consumer confidence.

If October’s confidence slumps further than expected it could cause the Euro US Dollar (EUR/USD) exchange rate to edge lower at the end of Wednesday’s session.

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