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Euro US Dollar (EUR/USD) Exchange Rate Rises on Franco-German Proposal

May 19, 2020 - Written by John Cameron

Euro US Dollar (EUR/USD) Exchange Rate Buoyed by Franco-German Proposal

The Euro US Dollar (EUR/USD) exchange rate edged up by around 0.2% this afternoon. This left the pairing trading at around $1.0935.

The single currency edged higher on Tuesday, boosted higher by a Franco-German proposal on Monday for a fund that would offer countries in the bloc grants to help with the hardest-hit sectors.

Germany and France proposed that the European Commission borrow 500 billion Euros on behalf of the whole European Union.

Commenting on this, currency analyst at MUFG, Lee Hardman noted:

‘The Franco-German proposal represents a material step forward towards harnessing joint fiscal capacity to provide sustained fiscal stimulus to support the economic recovery.’

US Dollar (USD) Loses Safe-Haven Appeal

Euro strength was further buoyed by weakness in the US Dollar as it lost its safe-haven appeal after promising results from a coronavirus vaccine trial.

Meanwhile, the US Dollar was down by around -0.2% against a handful of its rivals as risk appetite was buoyed by a promising coronavirus drug trial.

Moderna Inc’s experimental coronavirus vaccine is the first to be tested in the United States, and has produced protective antibodies in a small group of healthy participants.

Commenting on this, MUFG’s Lee Hardman noted:

‘The market’s positive reaction to the report is understandable as finding a vaccine for COVID-19 is the search for the Holy Grail. It would allow a return to normal at a much faster pace and significantly reduce long-lasting damage to the global economy.’

Euro (EUR) Rises as German Investor Sentiment Improves

Meanwhile, the single currency was offered further support after data from Germany revealed investor sentiment improved more than expected in May.

Concerns about the coronavirus crisis eased and hopes the economy would see a slow recovery in the second half of 2020 sent investor sentiment higher.

ZEW revealed Germany’s monthly survey showed investor sentiment improved from 28.2 in April to a higher-than-forecast 51.0 in May, boosting the Euro against the US Dollar.

In a statement, ZEW President, Achim Wambach said:

‘Optimism is growing that there will be an economic turnaround from summer onwards.’

Euro US Dollar Outlook: Inflation and FOMC Minutes in Focus

Looking ahead, the Euro (EUR) could give up some of today’s gains following the release of the Eurozone’s inflation data.

If April’s inflation rate slides further than expected, towards the lowest level seen since 2016, it will dampen single currency sentiment.

Meanwhile, the safe-haven appeal of the US Dollar could be reignited following the release of the US Federal Open Market Committee minutes.

If the Federal Reserve is overly dovish about the outlook for the world’s largest economy, it could send traders flocking back to the safety of the ‘Greenback’ and send the Euro US Dollar (EUR/USD) exchange rate lower.

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