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Improved Market Sentiment Buoys the Euro US Dollar (EUR/USD) Exchange Rate

May 26, 2020 - Written by John Cameron

Euro US Dollar (EUR/USD) Exchange Rate Jumps on Market Optimism for Coronavirus Recovery

The Euro US Dollar (EUR/USD) exchange rate rallied on Tuesday by around 0.7%, leaving the pairing trading at around $1.0977.

The single currency was able to make significant gains against a weaker US Dollar today as optimism about a global recovery from the coronavirus crisis offered riskier assets support.

However, gains were slightly capped as tensions between the US and China deteriorated further.

Commenting on today’s movement, Commerzbank’s currency analyst, Thu Lan Nguyen noted:

‘At the moment the Euro is torn between political risks on the one hand and positive sentiment on the markets as a result of further easing of the corona-related restrictions on the other. This morning, the latter is dominating, allowing it to appreciate against the Dollar.

‘However, in view of the continued disagreements within the EU about a corona recovery fund, the single currency is likely to run out of steam quite quickly in Euro-Dollar.’

Meanwhile, sentiment improved as Japan ended its state of emergency at the start of the week while Britain announced the reopening of thousands of shops in June.

This improved investor mood causing them to move away from the safe-haven ‘Greenback’.

According to MUFG’s currency strategist, Lee Hardman:

‘Investors remain in risk-seeking mode, encouraged by ongoing progress in suppressing COVID-19, which is allowing the gradual reopening of economies.

‘At the same time, the unprecedented amount of monetary and fiscal stimulus that has been put in place in recent months is providing support for risk assets’.

Euro (EUR) Rises as German Consumer Confidence Improves

The single currency rallied today after data revealed German consumer confidence improved in June after hitting a historic low in May.

GfK’s survey rose from -23.1 to -18.9 which suggests the bloc’s largest economy is recovering from the coronavirus pandemic.

The Euro rose as GfK said the gradual re-opening of the German economy helped to improve sentiment amongst consumers.

However, gains were likely limited as GfK’s Rolf Buerkl said that uncertainty remained at high levels as many consumers were concerned about the economy plunging into a severe recession.

Commenting on this morning’s data, Buerkl said:

‘Anxiety over job losses remains high and has proven to be a key barrier to consumption at this time, alongside losses in income.

‘Retailers and manufacturers must continue to adapt to this situation.

‘For a number of freelancers, for example from the culture sector, there is still no end in sight for the lockdown. This means their income remains at zero.’

Euro US Dollar Outlook: Will US-China Tensions Send Traders Flocking to USD?

Looking ahead, the US Dollar (USD) could rebound against the Euro (EUR) if tensions between China and the US deteriorate further.

If US-Sino relations worsen, overshadowing today’s rebound in risk appetite, it could send traders flocking back to the safe-haven ‘Greenback’.

Meanwhile, on Wednesday morning the single currency could suffer losses following a speech from the European Central Bank’s (ECB) President Christine Lagarde.

If Lagarde mentions monetary policy and is overly dovish about the outlook for the bloc due to Covid-19, the Euro US Dollar (EUR/USD) exchange rate will slide.

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