Euro to US Dollar Exchange Rate Sinks as Concerns Rise Over Eurozone’s Double-Dip Contraction

February 4, 2021 - Written by John Cameron

STORY LINK Euro to US Dollar Exchange Rate Sinks as Concerns Rise Over Eurozone’s Double-Dip Contraction

EUR/USD Exchange Rate as Eurozone Economic Woes Drag on Single Currency

The Euro to US Dollar exchange rate fell today, with the pairing currently fluctuating around $1.19.

The Euro struggled today as confident in the Eurozone’s economy has dipped as concerns continue to grow over Europe’s slow Covid-19 vaccine rollout.

Added to this, EUR investors are increasingly worried about the Eurozone entering a double-dip contraction this year.

Christoph Weil, economist at Commerzbank, commented:

‘In the first quarter of 2021, the decline is likely to be somewhat steeper. However, there will not be a slump like the one in the first half of 2020. Instead, a noticeable recovery is likely to set in again from the spring.’

In Eurozone economic news, today saw the publication of December’s Retail Sales, which beat forecasts and rose by 2% month-on-month.

Bert Colijn, the Senior Economist for the Eurozone at ING, commented on the report:

‘This is just a small bounce back from the large November drop because of new countries imposing restrictive measures while others loosened up for the holiday period. The modest rebound suggests that current lockdowns do significantly impair consumption despite online sales.’

EUR traders are remaining cautious, however, as the Eurozone’s economy is expected to suffer in the first quarter of 2021.

US Dollar Rises as US Initial Jobless Claims Fall

The US Dollar edged higher today on a mixture of risk-off market mood boosting demand for the safe-haven ‘Greenback’ and positive US economic data.

Today saw the release of the latest US Initial Jobless Claims, which fell below forecasts from 812,000 to 779,000.

Analysts at Bloomberg commented:

‘Applications for U.S. state unemployment benefits fell last week by more than forecast, a third straight decline that signals job cuts are starting to slow as Covid-19 infections ebb.’

Meanwhile, President Joe Biden’s plans for a US Covid-19 stimulus programme appear to be more promising, with the Biden Administration continue to press forward with plans for a $1.9 trillion stimulus plan.

US Senate Majority Leader Chuck Schumer said:

‘We cannot, cannot afford to dither, delay or dilute. We need a big, bold package along the lines of what President Biden has proposed, the American Relief Plan. We hope that our Republican colleagues will join us in offering amendments.’

As a result, demand for the ‘Greenback’ has risen as the outlook for the global economy, by comparison, seems increasingly uncertain compared to America’s.

EUR/USD Forecast: Could the EU’s Covid-19 Vaccination Delay Drag Down the Euro?

US Dollar investors will be looking ahead to tomorrow’s release of January’s NonFarm Payrolls data.

If these show a marked uptick in the US economy, as is generally expected, we could see demand for the safe-haven USD suffer.

Tomorrow will also see the release of January’s Unemployment Rate, which is expected to rise by 6.7%.

Consequently, demand for the US Dollar could remain steady as the nation suffers from high levels of joblessness.

Nevertheless, risk sentiment will continue to dictate the direction of the US Dollar this week.

Any further delays in the EU’s vaccination programme, therefore, could further increase demand for the ‘Greenback’ and weaken the single currency.

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