Euro to US Dollar Exchange Rate Climbs after Federal Reserve’s Dire Outlook
A brief rise in demand for the US Dollar (USD) earlier in the week was short-lived, and the Euro to US Dollar (EUR/USD) exchange rate is advancing once again. It comes as the Federal Reserve shocks markets with a gloomy US outlook.
Last week saw impressive gains of almost two cents for EUR/USD. After opening this week at the level of 1.1290, EUR/USD briefly dipped as the US Dollar tried to recover.
However, this movement as short-lived. EUR/USD has been trending higher again since Tuesday, and last night touched on a high of 1.1411. This was the best level for EUR/USD in over a year, since March 2019.
At the time of writing on Thursday, EUR/USD is trending fairly close below these highs, in the region of 1.1381. Further strength may be ahead, as the Euro’s appeal is still fairly resilient.
Euro (EUR) Exchange Rates Higher as Eurozone Outlooks More Optimistic
The Euro’s appeal in recent months has been largely due to weakness in rivals. Its biggest rival, the safe haven US Dollar, had been hit by hopes for major economies to rebound from the coronavirus pandemic.
This week, the US Dollar’s weakness persists and this is giving further support to the Euro.
However, the shared currency is also increasingly benefitting from rising market optimism about the Eurozone’s outlook and hopes for rebound.
Some Eurozone economies saw robust responses to the coronavirus pandemic, and some are expecting strong economic rebounds. This is thanks in part to monetary and fiscal policy.
Today, Euro investors are optimistic about fiscal policy stimulus being introduced by Germany’s government.
According to forecasts from the DIW Institute, Germany’s economy would return to growth next year and that the government’s stimulus package was noticeably supporting the economy.
US Dollar (USD) Exchange Rates Hit by Federal Reserve’s Concerns over US Economy
Last night, the Federal Reserve held its anticipated June policy decision. While there were no big shocks in the bank’s policy outlook, a dire forecast for the future of the US economy spooked global markets.
The bank said that the US economy would contract next year, and that monetary policy would remain near zero until the end of 2022. Investors hoping for a stronger rebound were disappointed.
Some analysts believe the US handling of the coronavirus could hinder economic recovery going forward. According to Yohay Elam, Analyst at FXStreet:
‘Coronavirus cases and deaths remain depressed in the old continent (Eurozone), which continues its cautious return to normal. Jumping to the other side of the world, California is suffering from an increase in hospitalizations – reaching the highest in a month – following the footsteps of Texas. Concerns about Florida are persisting for several days. The illness is far from being under control and struggling states seem unwilling to change course and halt the reopening process.’
The safe haven US Dollar is seeing mixed demand today as a result. Due to its status as a safe haven it is gaining against riskier currencies. However, optimism around the Eurozone recovery is making the Euro more appealing for investors looking for safer currencies.
Euro to US Dollar (EUR/USD) Exchange Rate to Keep Trending with Support
Two underlying factors are likely to keep the Euro to US Dollar exchange rate supported going forward.
Namely, markets are fairly optimistic about the Eurozone’s handling of the coronavirus pandemic, and the bloc’s recovery plans. In comparison, analysts still have many concerns about the US handling of the pandemic.
Now, thanks to the Federal Reserve’s dovishness, more investors are concerned that the pandemic could have a more long-term negative impact on US economic potential.
As a result, investors have little reason to sell EUR/USD. Investors may pull the Euro back from its best levels in profit-taking after a long period of gains, but it is unlikely to fall far.
The US Dollar will continue to find support as a safe haven. However so long as markets are more optimistic about the Eurozone’s outlook than the US outlook, the Euro may benefit more from safe haven demand.
As a result, the Euro to US Dollar (EUR/USD) exchange rate outlook remains fairly sturdy.
