The Euro US Dollar (EUR USD) exchange rate quietly strengthened overnight on Tuesday amid a rise in Geopolitical tensions.
USD investors are becoming increasingly skittish over the apparent shift in US foreign policy as Trump’s administration appeared to switch from an isolationist agenda to taking an active role in foreign conflicts.
US Secretary of State Rex Tillerson is to hold talks in Moscow later today with his Russian counterpart Sergi Lavrov as the US administration tries to persuade the Russian government to rescind its support for the Assad regime in Syria.
Tensions have frayed over the last week following US strikes on a Syrian airbase, in what the US said was retaliation for the alleged chemical weapons attack by the Syrian government in the rebel-held town of Khan Sheikhoun.
The move has caused investors to become increasingly nervous as they fear the possibility of the US and Russia butting heads over the whole affair, causing the US Dollar and US Treasury yields to sink on Tuesday, prompting the rise in EUR USD.
However the US administration has shown no signs of backing down and has even begun to turn its attention to the Korean Peninsula as it responds to an increasing number of threats from North Korea as the reclusive nation gears up for anniversary celebrations later this month, something it often caps off with a show of force or new missile tests.
The US has made clear however that it will not take acts of aggression lying down, something that was evidenced by a tweet from President Donald Trump on Tuesday that read;
‘North Korea is looking for trouble. If China decides to help, that would be great. If not, we will solve the problem without them! U.S.A’
Meanwhile the Euro’s gains have likely been slowed this morning as the uncertainty surrounding the French presidential election has risen following the sudden surge in support for another anti-EU candidate.
While once seen as virtual no-hoper, far-left veteran Jean-Luc Melenchon has seen his support rocket in polls over recent days propelling him into fourth place, with only 0.5% of the vote separating him François Fillon in third place.
While independent candidate and centrist Emmanuel Macron remains the favourite to take the presidency in the second round of voting, the sudden rise of a second Eurosceptic candidate suggests that anti-EU sentiment in the French electorate may be stronger than first thought.
Some pollsters have even begun to discuss the possibility of a runoff between Melenchon and the National Front’s Marine Le Pen, with the potential of two candidates that hope to pull France out of the EU entering the second round troubling EUR investors.
Looking ahead the EUR USD exchange rate may advance further this afternoon as US data is expected to show that domestic imports and export prices fell in March, while the increase in US crude stocks are forecast to have slowed from 1.5m barrels to 0.3m barrels for the week ending April 7th.
However, the Euro could be forced to cede some of it gains on Thursday as the final reading for last month’s German inflation report is expected to confirm that the inflation rate fell from 2.2% to 1.6% as fuel prices plummeted following the collapse of oil markets in March.
Current Interbank Exchange Rates
At the time of writing the EUR USD exchange rate was trending around 1.06 and the USD EUR exchange rate was trending around 0.94.
