- Euro USD Exchange Rate Up on Monday – But drops on Tuesday as risk-off takes hold
- Eurozone Concerns Remains High – Markets begin to expect new stimulus on poor data
- US Dollar Sturdy After Friday Data – US inflation and retail sales optimistic
- Forecast: ECB Policy Meeting This Week – European Central Bank action not expected yet
Euro USD Exchange Rate Slips Below Opening Levels
The Euro USD exchange rate fell around half a cent during Tuesday’s session as the market made strong risk-off moves throughout the day.
While the Australian Dollar had been strong last week, the RBA’s latest meeting minutes hinted that an Australian rate cut in August was still possible, causing the ‘Aussie’ to plummet.
This, alongside RBNZ rate cut bets as well as struggling commodity prices, led investors to lose appetite towards risky investments on Tuesday.
Markets instead sought out ‘safe-haven’ assets like the US Dollar, as the ‘Greenback’ strengthened against most major currencies throughout Tuesday’s session. Recent news that the US economy was healthy in June boosted USD sentiment further.
(Published 13:05 BST 18/07/2016)
The Euro USD exchange rate plummeted on Friday as US data diminished US market fears, causing EUR/USD to fall from its high levels of 1.1144 and ending the week trending around 1.1035, just lower than the previous week’s levels.
Since markets opened on Monday, EUR/USD has advanced quite solidly as markets reacted to the weekend’s news of a failed coup attempt in Turkey. At the time of writing, the pair was trending in the region of 1.1057.
Euro (EUR) Strengthens Slightly as Turkish Coup Attempt Fails
The Euro was trending sturdily on Monday morning after the weekend’s sudden beginning and sudden ending of a military coup attempt in Turkey.
On Friday night, the world was shocked when tensions in Turkey broke into an attempt from the Turkish military to replace President Erdogan as Turkey’s leader.
The crisis lasted for the majority of the weekend, but by Monday Erdogan was claiming that the situation was well under control.
While not a member of the European Union, Turkey has attempted to maintain a close relationship with the EU as a neighbour and potential future member.
As a result, news that relative stability was returning to Turkey boosted the appeal of other European currencies. While the primary movement was towards emerging-market currencies like the Turkish Lira, the Euro also gained in cross-flows as ‘safe-haven’ currencies lost appeal.
The Euro has also remained sturdy on the expectation that the European Central Bank (ECB) will not introducing new monetary easing policies in its meeting later this week.
US Dollar (USD) Appeal Sentiment Solid after Friday Data
While the US Dollar slipped on Monday due to a market movement towards emerging-market currencies, the currency remains in high favour among investors after Friday’s optimistic June datasets.
The latest series of highly anticipated data indicated that the US economy was in good health in June, despite the imminence of the UK’s EU Referendum at the time causing turmoil in global markets.
US retail sales improved in June from 0.2% to 0.6%, despite being expected to slow to 0.1%. On the other hand, June’s Consumer Price Index Figures (CPI) failed to meet expectations of 1.1% by matching May’s inflation of 1.0%.
However, markets were still impressed by this figure as it indicated that the US economy was perhaps not as ill-effected by June’s pre-EU Referendum jitters as some bears had predicted.
As a result of the optimistic reports, bets that the Federal Reserve could still hike the key US interest rate before the end of 2016 gained slightly with investors hoping that the US economy would be strong enough to weather the worst of July’s post-Brexit market panic.
Fed rate hike bets remained relatively low however, due to comments from the Fed policymakers last week that the risks of the Brexit’s effects on the global economy meant that the bank was currently not in a hurry to hike rates and would rather remain in ‘wait and see’ mode.
Euro USD Exchange Rate Forecast: Will ECB Discuss Brexit This Week?
Markets have been widely anticipating any comments from the European Central Bank (ECB) on the UK’s choice to leave the European Union since the EU Referendum result on the 24th of June.
While ECB President Mario Draghi previously expressed brief sadness over the vote result, investors have been eagerly awaiting the possibility that the ECB President would offer more detailed insight into his thoughts on the matter, as well as potential implications it could have on the Eurozone economy.
The ECB is not expected to be introducing any further Eurozone stimulus measures when it meets on Thursday this week. Bets that the bank would expand its easing policies this month lessened further when the Bank of England (BoE) left UK policy frozen last week.
Instead, markets currently expect the focus of discussion this month to be the Brexit, and its potential effects on the Eurozone economy. If the report is bearish, it is likely to cause the Euro to plummet as investors increase bets of new stimulus measures in September.
However, if ECB officials indicate that Brexit jitters have not yet affected the Eurozone as much as some have feared, the Euro could gain and stimulus bets would lessen.
The US Dollar, on the other hand, is likely to remain sturdy going forward as sentiment towards the health of the US economy remains high.
At the time of writing, the Euro USD exchange rate trended in the region of 1.1050, while the USD Euro exchange rate traded at levels around 0.9050.