EUR/USD Exchange Rate Edges Higher Despite Gloomy ECB Outlook
The Euro to US Dollar (EUR/USD) exchange rate rose by 0.2% today. This is in spite of Christine Lagarde, the President of the European Central Bank (ECB), saying that the Eurozone could face recession as bad as the most pessimistic forecasts. The pairing is currently trading around $1.10.
Ms Lagarde commented:
‘We’ll have a better sense in a few days as we publish our numbers in early June, but it’s likely we will be in between the medium and severe scenario.’
The Euro (EUR) also suffered after Ms Lagarde highlighted the probability that the Eurozone’s economy could shrink by more than 8% this year.
Meanwhile, the single currency benefited on reports that the European Union is nearing an agreement over a recovery fund to boost economic growth in the bloc post-pandemic.
George Saravelos, the head of research at Deutsche Bank, explains:
‘First, there has been recent progress on discussions on the reconstruction fund, and our baseline remains we will get an agreement over the summer. Second, thanks to the presence of the ECB in the background, the Italian bond market has been very resilient to negative news and we anticipate a further upscaling of ECB peripheral buying in June.’
As a result, the Euro (EUR) has benefited from signs of cohesion from the European Union, after fears that the recovery fund could be compromised by Germany’s constitutional court ruling against the ECB’s bond buying programme.
US Dollar (USD) Suffers as Coronavirus Optimism Continues to Rise
The US Dollar (USD) continued to suffer from a sell-off of safe-haven currencies today, with growing hopes for the global economy as nations worldwide attempt to recover their economies.
Yesterday saw news of a US biotechnology firm, Novavax, announce that it had begun human trials for a coronavirus vaccine. As a result, global risk-sentiment soared as the coronavirus continues to be challenged.
Meanwhile, the ‘Greenback’ has suffered from setbacks in the US economy after the Federal Reserve Bank of Chicago reported a drop to -16.74 in its national activity index.
Brian Coulton, the chief economist at Fitch Ratings, commented:
‘[T]he return to economic normality is likely to be a slow and bumpy process. Pre-virus levels of GDP are unlikely to be reached until mid-2022 in the U.S. and significantly later in Europe. This is despite massive policy stimulus.’
Nevertheless, with the US Dollar (USD) suffering from risk-on markets today, economic data has taken second seat as investors monitor global economic activity.
EUR/USD Forecast: Could Concerns Over the Global Economy Boost the ‘Greenback’?
Euro (EUR) traders will be looking ahead to tomorrow’s release of Germany’s flash harmonised inflation report for May. However, if the Eurozone’s largest economy continues to struggle, we could see the single currency’s gains compromised.
Tomorrow will also see the publication of the Eurozone’s business climate report for May. Any deterioration in the Eurozone’s business moral would prove EUR-negative.
The EUR/USD could continue to rise if tomorrow’s release of the US jobless claims for May show any considerable rise. As a result, we could see the ‘Greenback’ improve if fears for the global economy return.
The US Dollar (USD) could benefit from tomorrow’s release of the flash US GDP report. If this worries investors, then we could see safe-haven currencies regain market demand.
