Euro US Dollar (EUR/USD) Surges amid Increasing Risk Appetite
The Euro US Dollar (EUR/USD) exchange rate firmed today as a cheery market sentiment pressured the safe-haven ‘Greenback’.
At the time of writing the EUR/USD exchange rate is trading at $1.0893, up approximately 0.4% from this morning’s opening rate.
Euro (EUR) Firms despite Weak PMIs
The Euro (EUR) strengthened against the US Dollar (USD) today, despite the latest purchasing managers index (PMI) reports missing forecasts.
The Eurozone’s services PMI missed forecasts of 49, coming in at 48.4 in January, contracting for a sixth consecutive month. Furthermore, the manufacturing index contracted for an eleventh month, though managed to marginally beat forecasts, at 46.6.
However, the common currency is strengthening on its negative USD correlation, as cheery trade dents the safe-haven ‘Greenback’. Should USD continue to slump throughout today’s session, EUR may remain a favourable investment option ahead of tomorrow’s vital interest rate decision from the European Central Bank (ECB).
US Dollar (USD) Plummets amid Cheery Trade
The US Dollar fell today as an increasing appetite for risk permeated global markets.
While trade has become increasingly cautious in recent weeks amid escalating geopolitical tensions in the Middle East, jittery investors have continually favoured safe-haven currencies, such as the ‘Greenback’ during gloomy periods of trade.
However, amid renewed hopes of a ceasefire in Israel’s military operation against Gaza, the possibility of reduced trade disruptions across the Red Sea appears to be sparking upbeat trading conditions, causing USD to slump against it more risk-sensitive peers.
Senior Hamas official Sami Abu Zuhri confirmed on Monday that while no deal is yet in place, the organisation is actively discussing the possibility of a month-long truce in Gaza.
Zuhri states:
‘We are open to all initiatives and proposals, but any agreement must be based on ending the aggression and the occupation’s complete pullout from Gaza Strip.’
Furthermore, the People’s Bank of China’s (PBoC) latest initiatives to release more money into the Chinese economy, in hopes of bolstering economic growth, may also be impacting today’s increasing appetite for risk.
Ahead of key PMI reports this afternoon, USD may remain on the defensive, with a lack of upbeat data cushioning its downside in the interim.
Euro US Dollar Exchange Rate Forecast: ECB Rate Decision in Focus
Looking ahead, the ECB’s interest rate decision will be enacted tomorrow afternoon. With wide expectations that the central bank will keep rates unchanged, at 4.5%, the common currency may attract support through signs of prolonged rate holds.
Amid an increasingly hawkish narrative adopted by ECB policymakers in recent days, a ‘higher for longer’ approach towards interest rates in the first half of the year may see EUR lifted.
A press conference is due to follow, alongside a speech from ECB President Chrstine Lagarde. Should the central bank continue to advocate for a restrictive stance towards monetary policy, dwindling ECB rate cut bets may see the Euro strengthen.
Looking to the US, the latest PMI reports are due for release this afternoon. Both the services and manufacturing sectors are forecast to edge slightly lower in January, which could see USD’s losses amplified as the session continues.
