Euro US Dollar (EUR/USD) Exchange Rate Dips on Downbeat Mood
The Euro US Dollar (EUR/USD) exchange rate is slipping as market mood remains cautious, despite optimism surrounding a resolution to the US debt ceiling debate.
At time of writing, the EUR/USD exchange rate is around $1.0809, a 0.26% drop from this morning’s opening levels.
US Dollar (USD) Buoyed by Safe-Haven Flows
The US Dollar is enjoying renewed demand despite a flurry of concerns connected to the ongoing debt ceiling debate. A more cautious market has seen the safe-haven ‘Greenback’ supported.
With the latest meeting between President Joe Biden and House Representatives Speaker Kevin McCarthy proving fruitful, fears of the US defaulting on their debts receded. Biden was confident that there will be no US default and claimed that a deal would happen ‘because there’s no alternative’. He added:
‘To be clear, this negotiation is about the outlines of the budget, not about the whether or not we’re going to (pay our debts). The leaders (of Congress) have all agreed: We will not default. Every leader has said that.’
A rally in regional US banks also provided a much-needed boost the US Dollar, as Western Alliance Bancorp reported deposits grew by more than $2bn on climbing optimism. McCarthy, when quizzed by reporters over whether a deal will be reached by the time Biden returns from Asia, McCarthy said:
‘It’s doable. We’re on such a short timeline. It makes it almost harder. But there’s one thing you know, for me, I never give up. I have the grit, the perseverance and we’re gonna get it done.’
Euro (EUR) Underpinned by Further Rate Hike Expectations
Meanwhile, the Euro (EUR) is under pressure amid a lack of economic data. With much of Europe observing Ascension Day, markets are closed in France, Germany, and Switzerland. However, elevated interest rate expectations could be limiting losses for the Euro this morning.
Speaking at an event this morning, European Central Bank (ECB) Vice President Luis de Guindos claimed that ‘inflation in services is the most worrying for the ECB’. Hinting at further rate hikes, as inflation remains too high, Guindos added:
‘There is still scope to keep raising rates. But most of the tightening has already been done. (However, we do) not know what the end-point is going to be.’
Euro US Dollar Exchange Rate Forecast: Trio of Fed Speeches to Bolster Greenback?
Looking ahead, the Euro US Dollar exchange rate could see further daylight between the pairing with both Federal Speeches and the latest initial jobless claims potentially influencing the US Dollar. Initial jobless claims are expected to rise for the second week running, with an increase of 254k. Following last week’s climb, which was the highest since October 2021. The ‘Greenback’ could come under pressure on a cooling labour market. Meanwhile, speeches from several prominent Fed policymakers could also boost the US Dollar if hawkish tones are struck.
As for the Euro, a thin trading calendar could see the currency trade on market sentiment and external pressures. The negative correlation the Euro shares with the US Dollar could weigh heavily if the latter continues to strengthen.
