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EUR USD Exchange Rate Forecast: US Dollar Volatility Inevitable on Election Outcome

US Dollar Currency Forecast

US Dollar (USD) Remained on Downtrend Despite Fed-Positive Wage Data

Even though a number of the latest Eurozone Services PMIs fell short of forecast in October this failed to particularly dent the Euro US Dollar (EUR USD) exchange rate. Investors were encouraged by an upward revision in the finalised German Services PMI, with the Eurozone’s powerhouse economy continuing to demonstrate robustness. Better-than-expected Producer Price Index data for September also boosted the appeal of the single currency, suggesting that inflationary pressure could continue to pick up.

Confidence in the US Dollar (USD) remained weighed down by uncertainty over the outcome of the US presidential election, meanwhile, with markets moving to price in higher odds of a Trump victory after having largely discounted that eventuality in previous weeks. This investor anxiety diminished the impact of the October Non-Farm Payrolls report, which itself proved somewhat mixed in nature. However, while the headline figure disappointed there was an unexpected uptick in wage growth, which could encourage the Federal Reserve to take a more hawkish view in December.

As Mikael Olai Milhøj, Senior Analyst at Danske Bank, noted:

‘We think the higher wage growth and lower unemployment rate are sufficient ‘further evidence’ and make the Fed more confident hiking in December. Remember many FOMC members see the world through the Phillips curve and think that a tighter labour market leads to higher wage growth, which means higher underlying inflation pressure.’

EUR USD Exchange Rate Forecast: US Election Outcome to Determine US Dollar Direction

In terms of domestic data, Monday’s Eurozone retail sales figures are likely to offer additional support to the single currency. Expectations are for sales to have strengthened bullishly from 0.6% to 1.6% on the year, indicating that consumer confidence within the currency union remains robust. As much of the Eurozone’s economic activity has been driven by domestic consumers in recent months a strong showing here could encourage the Euro to extend its gains against the US Dollar.

Naturally the EUR USD exchange rate will remain volatile in the run-up to the election results, with the outcome of the vote likely to prompt sharp selling of either the Euro or the ‘Greenback’. A victory for Donald Trump is generally seen as more economically negative, with investors expected to pile out of the US Dollar if the Republican candidate wins. On the other hand, given the heavy discounting of the ‘Greenback’ in the last week, a triumph for Hillary Clinton is forecast to prompt a severe slump for the EUR USD exchange rate.

Current Interbank Exchange Rates

At the time of writing, the Euro US Dollar (EUR USD) exchange rate was trending higher around 1.11, while the US Dollar Euro (USD EUR) pairing was slumped in the region of 0.89.