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Near 2 Year Best for EUR to USD Exchange Rate amid Broad Dollar Weakness

July 27, 2020 - Written by John Cameron

Investors continue to buy the Euro to US Dollar (EUR/USD) exchange rate since markets opened today. After last week’s impressive gains, could the pair be in for yet further advances? Market anxiety over the US Dollar continues to deepen amid concerns for the US coronavirus, political and economic outlooks. Meanwhile, the Euro continues to benefit from weakness in rival currencies and a stronger Eurozone outlook.

EUR/USD has been advancing every week since mid-June, and last week’s gains were particularly strong as the US Dollar finally gave up on safe haven support.

After opening last week at the level of 1.1426, EUR/USD gained over an impressive two cents, ending the week near its highest levels in the region of 1.1656.

Since markets opened this morning though, EUR/USD has only seen further gains. The pair has already gained around another cent, and at the time of writing is trending near a high of 1.1756.

This has been the best level for EUR/USD in almost two years, since September 2018. A lack of reasons to favour the US Dollar to the Euro could keep EUR/USD high as well.

EUR Exchange Rates Continue to Find Support as Eurozone Data Impresses

Investors continue to find the Euro one of the market’s most appealing major currencies.

The Eurozone outlook has only continued to improve in the past week. Last week saw EU officials agree to a recovery fund plan. This will help the EU to rebound from the coronavirus pandemic, and it was agreed much earlier than investors expected.

While the plan does not go as far as some analysts hoped, it was overall positive for the Euro and helped the shared currency to keep seeing strong support.

The Eurozone’s outlook continues to find support in data as well. German confidence data published at the beginning of the week beat forecasts, keeping markets optimistic that the Eurozone economy could continue to weather the coronavirus pandemic even if a ‘second wave’ worsens.

According to Valeria Bednarik, Chief Analyst at FXStreet:

‘German’s IFO Business Climate report resulted above expected, printing at 90.5 in July, although the assessment of the current situation was slightly worse than anticipated. Expectations, however, jumped to 97.0 from 91.4.’

USD Exchange Rates Remain Weak despite Data as Currency Loses Safe Haven Shine

The US Dollar remains weak against the Euro today. In fact, much of the Euro to US Dollar exchange rate’s gains are due to US Dollar weakness.

The US Dollar is becoming less and less appealing due to a wide variety of factors. Perhaps most notably, the currency has been struggling to benefit from market safe haven demand due to concerns about the US outlook.

Coronavirus pandemic cases are surging in the US, and data has been too mixed to bolster hopes for resilient performance. It is leading to fears that the pandemic will continue to have a big negative impact on the US Dollar going forward.

According to Michael Pearce, Senior US Economist at Capital Economics:

‘The latest surveys suggest that durable goods orders rose further in July. But with the recovery in production largely a response to the rebound in consumption, by far the most important factor is how much the latter slows in response to the ongoing wave of new infections. While we doubt the economy is on the verge of a renewed contraction, we do expect the pace of recovery in the second half of the year to be far slower and bumpier.’

With the data not strong enough to boost the US Dollar, investors are also anxious ahead of this week’s anticipated Federal Reserve policy decision.

EUR/USD Exchange Rate Forecast: Federal Reserve Decision Could Cause Deeper USD Weakness

Investors may remain hesitant to buy the US Dollar in the coming sessions, as they anticipate key upcoming data and Wednesday’s Federal Reserve policy decision.

Tomorrow will see the publication of some US data, including consumer confidence data from CB and Richmond Fed’s latest manufacturing index data.

However, Wednesday’s session will be even more influential with Eurozone data and Fed news expected.

French consumer confidence data will be followed by US wholesale inventories and home sales stats.

Of course the biggest event will be the Federal Reserve decision. Speculation is rising that the Fed could take a more dovish stance on US monetary policy due to the worsening US coronavirus situation.

If the Fed does signal that more dovishness could be ahead, this could lead to even further US Dollar weakness. This could make it easier for the Euro to US Dollar exchange rate to hold its ground or climb even higher.
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