Dollar Attempts to Stabilise after Triple Blow, Can Euro Deliver a Knockout Blow?
The Euro to Dollar exchange rate (EUR/USD) surged to highs near 1.1600 on Friday and repeated this on Monday before consolidating near 1.1550.
The dollar was hurt by much weaker than expected US jobs data as well as the sacking of a key government employee and the resignation of a Fed Governor.
According to UoB; “Although the sharp rally appears to be excessive, there is a chance for EUR to test 1.1625. The major resistance at 1.1665 is unlikely to come into view. Support levels are at 1.1540 and 1.1505.”
ING commented; “we suspect there will be plenty of buyers in the 1.1500/1520 area – should it make it that low. 1.1700 seems a reasonable target for the next couple of weeks.”
The dollar came under pressure following Friday’s weaker-than-expected jobs data, and selling pressure intensified late in the US session amid two further important developments.
President Trump announced that he had ordered the dismissal of head of the Bureau of Labor Statistics (BLS) amid accusations of data manipulation. This demand was duly executed as she left her job immediately.
The move will increase unease over the risk of interference in data compilation.
Rabobank commented; “In short, on top of threats to the Fed’s independence, the market may now have to start worrying about the reliability of US data – and not only because statistics agencies are running into capacity constraints as a result of budget cuts.”
ING added; “Uncertainty about the quality of US data is not a good look for US asset markets and could add some more risk premium both into the dollar and Treasuries.”
Separately, Fed Governor Kugler announced her resignation from the central bank from August 8th.
Kugler’s term was due to end in January, but she has decided to leave early.
A new Governor will, therefore, have to be nominated, initially to complete Kugler’s unexpired term.
ING commented; “Her resignation brings forward the opportunity for President Donald Trump to nominate a (likely dovish) replacement for her – a position that could ultimately be used to replace Chair Jerome Powell when his term ends next May.”
MUFG, however, pointed to the possibility that Kugler’s resignation could harden Fed resistance to political influence.
It added; “The shock firing of the head of the BLS due to Friday’s weak report is an obvious dangerous development and could harden the views of the FOMC to ensure its independence is protected.”
The bank added; “Until we get an announcement, the appetite for buying back the dollar after Friday’s fall will be limited.”
The Euro-Zone Sentix investor confidence index unexpectedly decline to -3.7 for August from 4.5 previously and below expectations of 6.0.
According to Sentix; “Investors are not impressed by the EU's latest tariff deal with the US.”
The data is likely to trigger fresh reservations surrounding the Euro-Zone economic outlook.
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