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EUR to USD Exchange Rate Holds Recovery Thanks to European Central Bank’s (ECB) Calm

September 11, 2020 - Written by James Fuller

After opening this week with a downside bias, the Euro to US Dollar (EUR/USD) exchange rate has found fresh support in recent sessions. The European Central Bank (ECB) surprised markets with its unexpectedly optimistic tone, while the latest US data continues to paint an uncertain picture for the resilience of the US economy. Investors will now be looking ahead to next week, when the Federal Reserve will hold its September policy decision.

EUR/USD has seen mixed movement over the past week. EUR/USD opened the week at the level of 1.1837 and initially continued to trend lower as the US Dollar rebound persisted.

However, after touching on a monthly low of 1.1756 in the middle of the week, EUR/USD rebounded. EUR/USD even touched on a high of 1.1906 yesterday, which was around the levels seen at the beginning of September.

While EUR/USD has struggled to hold those best levels, the pair is still holding above the week’s opening levels today. At the time of writing on Friday, EUR/USD is trending near the level of 1.1871.s

EUR Exchange Rates More Appealing after European Central Bank (ECB) Avoids Dovishness

The Euro has recovered all of this week’s losses against its rival, the US Dollar. While the currency opened the week on a bearish note, it has seen a strong rebound in demand thanks to this week’s key European Central Bank (ECB) policy decision.

Investors sold the Euro for much of the week, amid expectations that the bank would ramp up warnings about the Euro’s broad strength.

However, the bank was unexpectedly calm regarding the Euro’s strength during its policy decision yesterday. During the following press conference from ECB President Christine Lagarde, she reiterated that the bank did not target the Euro.

Her lack of expressed concern on the Euro was a signal to investors that the bank was not considering talking down the Euro’s strength – at least not yet.

Some analysts said that the bank’s ability to act on Euro strength is limited, which explained its stance. According to Seema Shah, Chief Strategist at Principal Global Investors:

‘Markets know there is very little that the ECB can actually do to weaken the currency. Rates are almost as low as they can possibly go and the various asset purchase and lending program are already sizable,’

USD Exchange Rates Remain Weak, but Selloff May have Slowed

The US Dollar has spent much of September so far attempting to rebound from its cheapest levels.

While the US Dollar continued to advance when markets opened for this week, its recovery rally ran out of steam around the middle of the week.

This was due to various factors, such as a lack of fresh support for the currency, as well as continued strength in its rival the Euro.

On top of this, yesterday’s US jobless claims data was weaker than analysts expected. It added to concerns that the US economic outlook was still seeing a lot of weakness as the US Presidential Election approaches.

Still, some analysts predict that the US Dollar’s lasting weakness may be hitting a floor. According to Derek Halpenny, Head of Research at MUFG, USD may not have much further to fall:

‘When market participants compare the tone of the ECB

with the Fed’s formal shift to allow greater inflation, the market remains encouraged to sell the Dollar,

But the Euro/Dollar correction back from 1.1900 after the ECB press conference does indicate that Dollar selling may still have reached its limits for now’

EUR/USD Exchange Rate Forecast: Federal Reserve Policy Decision Ahead

The Euro to US Dollar exchange rate is avoiding losses for now. However, as markets settle positions for now, there may not be much fresh movement in the pair without further impetus.

As a result, investors will be watching carefully for the next major coronavirus developments.

Domestic economic and political developments will of course remain influential as well. Next week’s most notable event is likely to be Wednesday’s Federal Reserve policy decision.

The Fed is expected to leave monetary policy frozen. However, the bank’s comments on the state of the US coronavirus pandemic, as well as the health of the US job market, have large potential to influence the US Dollar’s outlook.

Beyond that, US retail stats on Wednesday, and Eurozone inflation figures on Thursday, could also influence the Euro to US Dollar exchange rate next week.
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