Euro US Dollar Exchange Rate Avoids Losses despite Eurozone’s Coronavirus Jitters
While markets expect the Eurozone’s coronavirus restrictions to last a while, the Euro US Dollar (EUR/USD) exchange rate is benefitting from overall market sentiment today. Optimistic developments this week are dampening safe haven demand.
After opening this week at the level of 1.2075, EUR/USD briefly slipped to a month and a half low of 1.2055.
Since then though, EUR/USD has been attempting a recovery rebound. A dip on political uncertainty was short-lived yesterday, and EUR/USD is currently trending near the level of 1.2145 – over half a cent above the week’s opening levels.
Unless there is a sudden rise in safe haven demand, the Euro to US Dollar exchange rate could one again be in for gains.
Euro (EUR) Exchange Rates Resilient despite European Central Bank (ECB) Caution
Investors are buying the Euro US Dollar exchange rate, despite concerns about the Eurozone’s coronavirus situation and a potentially more dovish European Central Bank (ECB).
This is largely due to weakness in the safe haven US Dollar (USD). The Euro (EUR) and US Dollar have a negative correlation, so one often gains when the other falls.
Still, the Eurozone’s relative economic resilience is helping the Euro as well.
While the European Central Bank (ECB) could continue to speak down the Euro’s strength, Eurozone ecostats continue to show resilience despite the coronavirus pandemic. Today’s French business confidence stats beat forecasts.
US Dollar (USD) Exchange Rates Weak as Market Confidence Grows
Last night saw the inauguration of Joe Biden, who was sworn in as the 46th President of the United States.
The session came as a relief to markets. There were no shocks or notable occurrences of civil unrest despite concerns, and Biden has already taken his first actions as President.
Markets were even more willing to take risks as the uncertainties around the event faded. Optimism for a potentially huge stimulus package from the new Joe Biden government is further boosting risk-sentiment.
As a result, the safe haven US Dollar’s appeal is fading. Investors more willing to take risks are selling the US Dollar for now. According to Connor Campbell, Analyst at SpreadEx:
‘It appears that Biden isn’t messing around. And it is exactly this purposeful and robust approach the markets were hoping for – especially if it leads to his $1.9 trillion Covid-19 stimulus package escaping the Senate unscathed.’
Euro US Dollar (EUR/USD) Exchange Rate Could Extend Gains if PMIs Impress
Tomorrow will see the publication of the Eurozone’s January PMI projections. They will give investors a better idea of how the Eurozone economy is weathering continued coronavirus restrictions.
If these stats impress, there is a good chance the Euro to US Dollar exchange rate will end the week higher.
Demand for the US Dollar remains weak, as investors are more eager to take risks due to rising US fiscal policy hopes and the global recovery outlook.
This alone makes the chances of further EUR/USD gains quite good.
For EUR/USD to fall instead, markets would need to be disappointed by today’s European Central Bank (ECB) news and tomorrow’s Eurozone data, or there would need to be a fresh rise in demand for safe havens.
Driven largely by safe haven demand, tomorrow’s US PMI projections and home sales stats may not have too much influence on the Euro US Dollar (EUR/USD) exchange rate.
