Euro to US Dollar Exchange Rate Continues to Test Highs despite Some Safe Haven Demand
Market uncertainty over the global coronavirus situation, as well as fresh trade tensions, have not prevented the Euro to US Dollar (EUR/USD) exchange rate from trending higher. Euro (EUR) investors continue to find the shared currency appealing due to a strong Eurozone outlook.
This week could turn out similar to last week for EUR/USD. After opening last week at the level of 1.1247 last week, EUR/USD spent the week climbing higher and closed on Friday at 1.1294.
While this was not the pair’s weekly best, EUR/USD is once again trending higher this week. At the time of writing on Tuesday, EUR/USD is trending near a high of 1.1373.
Looking ahead, investors may be hesitant to make any big shifts on the Euro ahead of Thursday’s anticipated European Central Bank (ECB) policy decision.
Euro (EUR) Exchange Rates Find Support in Optimistic Eurozone Data
While this week’s Eurozone data has not been hugely surprising so far, it has been solid enough to help the Euro to hold its ground.
Investors were already generally optimistic about the Eurozone’s potential for recovery. The actions of the EU and European Central Bank (ECB) are only further boosting hopes for a Eurozone recovery.
As a result, while today’s Eurozone data was mixed it was not enough to offset recovery hopes.
Today’s Eurozone and German economic sentiment stats from ZEW showed slightly worse than forecast figures for Germany. However, analysts remain cautiously optimistic. According to Thomas Dvorak, Eurozone Economist at Oxford Economics:
‘This marks the fourth consecutive improvement in the index, reflecting the nascent economic recovery in the Eurozone following the lifting of the lockdown measures. The assessment of the current situation also improved somewhat but remained at fairly low levels, suggesting investors think the material improvement of the economy is yet to come’
US Dollar (USD) Exchange Rates Remain Unappealing despite Surging Coronavirus Cases
The US Dollar is a currency often correlated with market demand for safe havens. However, the US currency has struggled to capitalise on safe haven demand lately, due to concerns over how the US economy will be impacted by the coronavirus pandemic.
Plus, while the US Dollar has been benefitting only slightly from brief bursts of safe haven demand, it has continued to tumble in times of optimism and higher risk-sentiment.
Despite surging numbers of the virus in the US, investors remain hopeful that some major economies can rebound. This is partially due to the Eurozone’s recent data, which has of course benefitted the Euro.
Signs of weakness in US economic figures are also weighing on the US Dollar. The latest US wages data showed that average pay is slipping.
Euro to US Dollar (EUR/USD) Exchange Rate Could See Further Strength on Optimistic ECB
The European Central Bank (ECB) will hold its July policy decision on Thursday. This is likely to be the biggest event this week for Euro to US Dollar exchange rate investors.
Analysts don’t expect the ECB to make any notable shifts in tone or monetary policy. In fact, with Eurozone data showing signs of improvement and investors optimistic about the chances of an EU Recovery Fund, the ECB could be more optimistic.
If the ECB does take a slightly more optimistic tone on the Eurozone outlook, the Euro is likely to see even stronger support.
This could make it easier for EUR/USD to climb even higher, amid a lack of support for the US Dollar.
Even if market safe haven demand improves, the US Dollar’s appeal may remain weak due to concerns over US coronavirus infections and US data.
Investors may be hesitant to sell the Euro to US Dollar (EUR/USD) exchange rate much unless the Euro weakens or Thursday’s US retail sales results highly impress.