EUR/USD Exchange Rate Slumps Amidst Brexit Chaos as Investors Pull out of Euro
The Euro US Dollar (EUR/USD) exchange rate dropped to $1.13 today as the political instability within the UK government over Brexit spilled over and caused a drop in demand for the Euro.
The EUR/USD exchange rate trended down before recovering as investors favoured the safe haven Dollar over the Euro.
From the beginning of the week there has been a slump in the EUR/USD exchange rate, while the Euro did push back on Monday evening, the pairing saw a drop following the Brexit turmoil seen today.
EUR/USD Exchange Rate Drops as Italy, Germany and Brexit Problems Loom
Tension surrounds the Euro as the worry over Italy’s budget remains. Neither Brussels nor Rome seem to appear ready to offer a compromise.
While a compromise is not off the table, it seems it is less likely than where it was at the end of September, as the concern is that large deficits could raise the odds of a larger-scale ‘Greece-style crisis’ as Italy’s debt-to-GDP ratio is currently 130%.
Meanwhile, another cause of a slump in the Euro US Dollar (EUR/USD) exchange rate was the shock of Germany’s economy contracting for the first time since 2015.
Germany, Europe’s largest economy, shrank by 0.2% in its third quarter, this being the country’s first quarter-on-quarter fall since 2015. Also in the third quarter, the Eurozone grew at its slowest rate in four years.
USD/EUR Exchange Rate Buoyed on Hawkish US Federal Reserve
The US retail sales figures released today further demonstrate the bullish atmosphere surrounding the US currency, as the forecast predicted an increase from -0.1% to 0.6%, yet the figure was a better-than-expected 0.8%, the highest since June.
Wednesday also saw the release of the US consumer price index figures which saw an increase from the previous 2.3% to 2.5%, although there was an unexpected fall in the core consumer price index from the previous 2.2% to 2.1%, the lowest figure since this May.
Jerome Powell, chair of the US Federal Reserve, gave an optimistic speech about the US economy which further aided the Dollar. In it he stated he was ‘very happy about the state of the economy right now … there’s pretty good reason to think we’re going to continue on a positive vein like that.’
EUR/USD Could Potentially Slump Further on Worrying Europe News
The Euro US Dollar (EUR/USD) exchange rate slumped due to a mixed bag of Brexit chaos, Germany GDP, and Italy’s reluctance to follow EU regulations.
The Euro could push back against the USD if comments from the European Central Bank reflect a more hawkish stance, which could encourage the single currency to trade higher and investors to begin jumping back into the single currency.
Brexit pessimism rages, as following Dominic Raab’s resignation this morning in protest at the Prime Minister’s Brexit draft, there was a domino-style flurry of resignations.
British MPs have been handing in their letters of no-confidence of May’s leadership abilities, which could potentially have a negative effect upon the EUR/USD exchange rates if Brexit chaos cannot be contained.
