EUR/USD Exchange Rate Sinks as Outlook for Eurozone Economy Darkens
The Euro to US Dollar exchange rate fell by -0.4% today, with the pairing currently trading around $1.21.
The Euro struggled today following the publication of January’s German Business Climate and Expectations report.
Business climate data fell unexpectedly to 90.1 while expectations also undershot consensus and fell to 91.1.
Carsten Brzeski, Global Head of Macro at ING Bank, commented:
‘Today’s IFO index shows the full impact of the stricter lockdown measures put in place in mid-December, signaling a very weak start to the new year for the German economy.
‘We will only know for sure on Friday, but there is compelling evidence that the German economy avoided a double-dip in the fourth quarter.’
As a result, the Euro has suffered as concerns continue to grow concerning the future of the Eurozone’s economy.
Today also saw reports that a top adviser, Prof Jean-Francois Delfraissy, had warned that France was entering an ‘emergency’ situation regarding the coronavirus epidemic.
Delfraissy said:
‘If we do not tighten regulations, we will find ourselves in an extremely difficult situation from mid-March.’
US Dollar Rises on Increased Safe-Haven Demand
The US Dollar has benefited from its safe-haven status today, with investors flocking to the currency as the outlook for the global economy looks increasingly dim.
However, President Joe Biden has continued to hint at further Covid-19 stimulus programmes for America, which has helped ease fears about the world’s largest economy.
Analysts at Reuters warned:
‘[I]nvestors are wary about towering valuations amid questions over the efficacy of the vaccines in curbing the pandemic and as U.S. lawmakers continue to debate a coronavirus aid package.’
In US economic news, today saw the release of the latest Dallas Fed Manufacturing Business Index for January, which fell from 10.5 to 7.
The Texas Manufacturing Outlook Survey said:
‘Expectations regarding future activity remained positive in December, though some key indexes moved down from their November readings. The future production index rose seven points to 47.3, while the future general business activity index moved down eight points to 17.6. Other measures of future manufacturing activity showed mixed movements but remained solidly in positive territory.’
EUR/USD Forecast: Could Rising Covid-19 Infections in Europe Drag Down the Single Currency This Week?
US Dollar investors will be looking ahead to tomorrow’s release of November’s S&P Case-Shiller Home Price Indices.
Any improvement in the US housing sector could weaken demand for the safe-haven ‘Greenback’.
However, with global markets becoming increasingly concerned about the Eurozone’s economy, we could see the US Dollar head higher.
Added to this, the Eurozone’s rising Covid-19 infections could also continue to drag down the single currency.