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EUR to USD Exchange Rate Kept Lower by Coronavirus Jitters and Safe Haven Demand

November 13, 2020 - Written by John Cameron

Despite a rise in market risk-sentiment this week, the Euro to US Dollar (EUR/USD) exchange rate has been unable to hold its ground. Concerns about the Eurozone’s coronavirus surges, combined with lingering safe haven demand, are keeping the pair under pressure. The latest Eurozone data has not been enough to boost the Euro either, and looking ahead there is potential for safe haven demand to persist enough to cause further EUR/USD losses.

Since opening this week at the level of 1.1874, EUR/USD has been trending with a downside bias as the Euro failed to hold near highs. Relatively speaking, EUR/USD is close to its best levels as it touched on a two month high of 1.1918 before tumbling on Monday.

EUR/USD touched on a weekly low of 1.1747 in the middle of the week. While its recovery has been limited, the pair has still been edging higher since then.

At the time of writing on Friday, EUR/USD has recovered around half of its losses and trends in the region of 1.1823.

EUR Exchange Rates Fail to Find Much Strength in Eurozone Growth Data

Today saw the publication of the Eurozone’s latest Q3 Gross Domestic Product (GDP) growth rate projections.

Unfortunately for the Eurozone, the bloc’s quarterly growth rate was revised lower from 12.7% to 12.6%. The yearly rate was also revised slightly lower, to –4.4%.

The data still showed the strongest quarterly growth for the Eurozone on record as the bloc bounced back from coronavirus lockdown.

However, with many key parts of the Eurozone seeing fresh restrictions and lockdown amid a second wave of infections, this lower growth rate score has worsened concerns about the resilience of the Eurozone economy.

According to the report from Eurostat:

‘These were by far the sharpest increases observed since time series started in 1995, and a rebound compared with the second quarter of 2020, when GDP had decreased by 11.8% in the Eurozone and by 11.4% in the EU.’

The Eurozone is expected to see some more months of weakness in the winter months as the bloc weathers fresh coronavirus restrictions. With a vaccine still at least a few months out, any real economic rebound from a vaccine cannot be expected for some time.

According to Paolo Hernandez de Cos, European Central Bank (ECB) Governing Council Member:

‘News of Covid vaccine are positive but it will take some time before seeing some positive impact on the economic activity,’

Today’s other Eurozone data, was also mixed. Some stronger than expected Eurozone trade data may have supported the Euro against the US Dollar today.

USD Exchange Rates Resilient amid Safe Haven Demand

The US Dollar is a safe haven currency, which often strengthens in times of global market uncertainty. However, despite higher market sentiment this week the US Dollar has remained fairly appealing.

There was briefly a surge in market optimism as the US 2020 Presidential Election result ended up being fairly clear. On top of this, news of a coronavirus vaccine made markets more optimistic about the global outlook.

However, uncertainties persisted in both these areas, which kept safe havens like the US Dollar fairly appealing.

US President Donald Trump has refused concede his loss in the election, which is causing concerns of democratic uncertainty to rise. As for the coronavirus pandemic, it is still expected to cause months more damage to economies and peoples lives before a vaccine is finally ready.

These factors are keeping the US Dollar fairly resilient, but its strength is fairly limited as markets are overall more optimistic than they have been. According to Thu Lan Nguyen, FX Strategist at Commerzbank:

‘The rally on the markets following the US elections and the news of an effective vaccine has petered out,

However, the chances are high that the market will not go back into panic mode too quickly’

EUR/USD Exchange Rate Forecast: Coronavirus Fears Could Keep Pair Weak

Uncertainty around the coronavirus pandemic and the US 2020 Presidential Election persist, despite the past week’s optimistic developments in these areas.

A coronavirus vaccine, while reportedly on the way, may not be ready until some time into 2021. This will mean many major economies, including in the Eurozone, could be in for gloomy winter holiday seasons.

If major Eurozone economies like Germany continue to struggle with worsening coronavirus situations next week, the Euro is likely to remain under pressure.

The Euro could also weaken if its rival, the US Dollar, remains strong.

The US Dollar could continue to benefit from safe haven demand if global coronavirus fears persist. The safe haven US Dollar may also rise if the US Presidential transition period remains hampered by US President Trump’s claims of fraud, which lack any real evidence.

Data due for publication next week could also cause some Euro and US Dollar movement.

In particular, the Euro to US Dollar exchange rate could be influenced by US retail sales data due on Tuesday.
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