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EUR to USD Exchange Rate Slips as Rush to Safe Havens Boosts US Dollar

September 21, 2020 - Written by David Woodsmith

Despite a lack of fresh developments in Eurozone data, the Euro to US Dollar (EUR/USD) exchange rate has been tumbling today. The US Dollar is benefitting from a jump in market demand for safe havens, despite the US outlook being fairly mixed itself. Further developments in how the coronavirus pandemic will be handled in the Eurozone and US going forward will be in focus this week, but investors will also closely watch upcoming comments from central bank officials.

Multiple US Dollar recovery attempts this month so far have been limited, and EUR/USD has generally been trending around the level of 1.1840 in recent weeks despite many dips.

This was the case last week, when EUR/USD closed the week just slightly lower, but still avoided the monthly low of 1.1750 seen in the middle of the week.

After opening this week at the level of 1.1842, EUR/USD briefly attempted to rise before slumping. At the time of writing, EUR/USD is still falling and trends in the region of 1.1755.

EUR Exchange Rates Volatile on Concerns of Currency Strength and Coronavirus Second Wave

The Euro has been strong in recent months, due to hopes that the Eurozone was recovering from the coronavirus pandemic better than other major economies.

Signs of resilient Eurozone data have helped keep the currency appealing as well.

However, the shared currency’s strength has begun to prove its own problem.

The European Central Bank (ECB) has been hesitant to signal that it will attempt to target exchange rates or influence the Euro’s strength. However, officials have still expressed concern with the currency’s months of strong performance, saying it would impact Eurozone trade.

In comments made today, ECB President Christine Lagarde said the bank was closely watching exchange rates:

‘The appreciation of the Euro obviously plays a role in different areas and as far as monetary policy is concerned, it exerts downward pressure on the level of prices,

We are very attentive to the appreciation of the Euro and we take it into account in determining our monetary policy.’

However, perhaps the biggest cause of the Euro’s losses today was a rise in demand for its rival, the US Dollar.

The US Dollar is a safe haven currency, so it has seen a fresh jump in demand today as global markets react to a surge in coronavirus cases.

USD Exchange Rates Benefit from Market Safe Haven Demand

Investors piled into the US Dollar today, continuing the currency’s recovery attempts. The US Dollar is a currency often correlated with safe haven demand, and the currency saw much stronger demand as the global coronavirus pandemic appeared to worsen again.

The coronavirus pandemic second wave has showed signs of hitting major economies across the world.

As a result of returning fears that the coronavirus pandemic could have huge impacts towards the end of the year, investors have been looking to buy safe haven currencies. The US Dollar has been one of the biggest beneficiaries of this movement so far.

This is despite a lack of strong US data lately. There are signs of weakness in the key US job market, and US political uncertainties continue to rise ahead of November’s US Presidential Election.

According to Christin Tuxen, Head of FX Research at Danske Bank, the US Dollar is also benefitting from doubts that EUR/USD will rise higher:

‘To see Euro/Dollar break to the upside, FOMC (Federal Open Markets Committee) members would need to flip communication in a dovish direction and signal more support while PMIs should surprise on the upside’

EUR/USD Exchange Rate Forecast: Coronavirus and Central Bank Comments in Focus

The Euro may continue to fall from its recent highs, if the Eurozone’s coronavirus situation continues to worsen.

Investors will remain hesitant to buy the Euro as investors move away from risks, unless the US Dollar itself sees new downside pressure.

This is possible though, depending on upcoming comments from central bank officials.

European Central Bank (ECB) officials will be holding speeches tomorrow, including Chief Economist Philip Lane.

However, a testimony from Federal Reserve Chairman Jerome Powell will be even more influential. If Powell talks up coronavirus risks or hints at more monetary policy, the US Dollar’s rebound attempt could fall short.

Tomorrow’s data includes Eurozone consumer confidence and US manufacturing data from Richmond Fed.

Of course, a worsening of the coronavirus second wave could also weigh heavily on the Euro to US Dollar exchange rate.
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