EUR USD Exchange Rate Near Best Levels in Years as Markets Remain Optimistic
Despite touching its best levels in years yesterday, the Euro to US Dollar (EUR USD) exchange rate has avoided much of a recoil. The US Dollar (USD) remains unappealing amid speculation over the global economic recovery, as well as Federal Reserve bets.
EUR/USD saw a solid rise in demand last week. After opening the week at the level of 1.1856, EUR/USD gained around a cent and closed the week at the level of 1.1964.
Rather than recoiling from these highs though, EUR/USD continues to trend with an upside bias this week so far. Yesterday EUR/USD touched on a high of 1.2000. This was the best level for the pair in over two years, since 2018.
On Tuesday afternoon, EUR/USD continues to trend close to those highs. The pair could fall back from its current highs if markets see reason to buy the US Dollar again however.
Euro (EUR) Exchange Rates Remain Appealing despite Coronavirus Uncertainty
The Eurozone economy is still facing a second wave of the coronavirus pandemic. Major economies like Germany are being hit harder than expected.
However, the Euro (EUR) remains appealing despite this. This is largely due to the broad weakness of its rival, the US Dollar.
The Eurozone’s recovery outlook is also being seen as comparatively more optimistic than the US outlook. Today’s Eurozone manufacturing PMIs from November were a little mixed, but they overall printed stronger than projected.
According to Chris Williamson, Chief Business Economist at IHS Markit:
‘Although the rate of expansion cooled from October’s 32-month high amid new lockdown measures, the sustained expansion should help to soften the economic blow of COVID-19 restrictions, which have hit the service sector hard. The survey therefore adds to evidence that the region will avoid in the final quarter of the year a similar scale of downturn recorded in the second quarter.’
US Dollar (USD) Exchange Rates Struggle as US Data Fails to Boost Outlook
The US Dollar has not seen much in the way of strong support lately.
As a safe haven currency, the US Dollar is weakening as coronavirus vaccine hopes make investors more willing to take risks.
On top of this underlying weakness though, recent US data continues to indicate that the US economy is being hit harder than expected by the coronavirus pandemic.
Today’s US manufacturing PMI stats from ISM fell largely short of expectations. The key print came in at 57.5 rather than the expected 58.
All this has furthered speculation that the Federal Reserve could be pressured to take more action to stimulate the US economy. Edward Moya, Senior Market Analyst at OANDA, said:
‘We’re seeing further softening of US economic data
And there hasn’t been any sign that we’re going to see Congress deliver a stimulus package any time soon.’
Euro to US Dollar (EUR USD) Exchange Rate Could Hold Best Levels Unless USD Rebounds
While EUR/USD has hit its best levels in years, the pair may be able to hold near these highs rather than falling back in a recoil or profit taking.
Edward Moya at OANDA believes there is more weakness ahead for the US Dollar, saying ‘The longer-term trend is clearly going to be Dollar weakness.’
This could mean that the Euro rises even higher against the US Dollar, as the two currencies are often negatively correlated.
The US Dollar may be more likely to recover if there are optimistic developments in the US outlook however. For example, if Federal Reserve officials are more hawkish than expected in fresh comments expected tomorrow.
Some stronger than expected US Non-Farm Payroll data on Friday could also lead to higher demand for the US Dollar and push EUR/USD back from highs.
On the other hand though, the Euro’s own support could be strengthened by any upcoming Eurozone data which beats expectations.
Tomorrow’s German retail sales and Eurozone unemployment rate figures will be closely watched by Euro to US Dollar exchange rate investors.