EUR/USD Exchange Rate Pressured by Italian Budget Tensions
The Euro US Dollar (EUR/USD) exchange rate is treading water this morning as Italian budget tensions rise ahead of the European Commission’s (EC) verdict on Rome’s latest spending plans.
Euro (EUR) Exchange Rates Dented by Italy Concerns
The Euro (EUR) is subdued in trade this morning, edging lower against the US Dollar (USD) and the Pound (GBP), with investors becoming skittish as the EC prepares to deliver its response to Rome’s budget plans.
Ahead of the EC’s formal response on Wednesday, Italy’s EU partners have been calling for the EC to up the pressure on Rome as it refuses to revise its budget plans despite breaking EU fiscal rules.
Austrian Finance Minister Hartwig Loeger told reports that he expects ‘a clear response from the commission this week’ over Rome’s decision not to comply with EU rules.
Dutch Finance Minister Wopke Hoekstra stated the response must address the concerns held by many members of the Eurozone as he said:
‘This is a matter that not only involves Italy but involves all of us because in the end we are a high-trust society and it’s imperative that the commission does what’s in the interest of all the different European countries.’
While Italian deputy premier Luigi Di Maio suggested that the EC’s response ‘doesn’t worry’ him, EUR investors certainly feel a different way, with markets fearing the impact potential fines and the freezing of EU funds could have on the Eurozone’s third largest economy.
US Dollar (USD) Dented by Fed Rate Speculation
At the same time the US Dollar (USD) is struggling to make any headway this morning, amid growing speculation that the Federal Reserve may ease up on interest rates next year.
Up until very recently Economists were confident the Fed would raise interest rates again in December and then three more times in 2019.
However recent polls suggest this outlook has shifted in recent weeks, with the Fed still expected to lift rates next month but to only target two additional hikes next year.
This coincides with forecasts that a growing number of downside risks could curtail US economic growth next year.
James Knightley, chief international economist at ING suggests:
‘The economy is facing a growing number of headwinds, including the lagged effects of previous interest rate rises and dollar strength, the uncertainty of trade protectionism at a time when external demand is slowing, and a sense that the support from the fiscal stimulus will gradually fade.’
EUR/USD Exchange Rate Forecast: Slowing Eurozone PMIs to Place Further Pressure on the Euro?
Looking past the EC’s response to Italy on Wednesday, the Euro US Dollar (EUR/USD) exchange rate may come under further pressure in the tail end of the week, with the publication of the Eurozone’s latest PMI releases.
Economists forecast that growth in both the bloc’s manufacturing and service sectors will have continued to slow this month, likely dampening EUR sentiment as it provides further evidence that Eurozone GDP will have remained subdued in the fourth quarter.
In the meantime, the release of the latest US durable goods orders may weaken the US Dollar on Wednesday as economists forecast order growth will have contracted from 0.8% to -2.5% in October.