Investor Confidence Continued to Boost US Dollar (USD) Demand Despite Election Shock
Markets have been relatively quick to recover from the initial shock of Donald Trump securing victory in the US presidential election. Despite suffering heavy losses as the result of the vote became increasingly clear the US Dollar (USD) has since staged something of a recovery. In large part this has been due to signs that Trump is toning down on his campaign rhetoric, offering a less inflammatory tone and easing rumours of Fed Chair Janet Yellen being pressured into resignation.
This limited the gains of the Euro US Dollar (EUR USD) exchange rate, particularly as European Central Bank (ECB) policymakers expressed a willingness to act to support the domestic economy. With speculation of a December extension to the quantitative easing program persisting the appeal of the single currency was thus diminished.
Investors were also discouraged by news that the Greek unemployment rate has unexpectedly risen in August, something that undermined optimism in the outlook of the Hellenic republic. With political risk already seen as being on the rise in the wake of the Trump win the future of the currency union seems to be more uncertain. A substantial increase in the power of populist movements could potentially derail the Greek recovery and ultimately undermine the integrity of the Eurozone itself.
EUR USD Exchange Rate Forecast: Uncertainty over Trump Economic Plan Could Hamper US Dollar
While market unease over Donald Trump’s election gradually eased in the hours following the result this trend may prove to be equally short-lived. At this juncture there is still a decided lack of clarity over what exactly a Trump presidency will look like, with some justified scepticism as to whether the candidate will really be all that different once he has the keys to the White House. If investors are prompted to reconsider their optimistic assessment of the new political reality then the US Dollar could well come under fresh downside pressure in the weeks ahead.
As Derek Halpenny, European Head of GMR at MUFG, noted:
‘The low for EUR/USD in October was 1.0851 and then we have the low from March at 1.0822 – an area that should act as good technical support as markets await further indications on the initial direction of policy under President-elect Trump. The dollar looks quite rich at these levels given the degree of uncertainty that lies ahead.’
This is likely to remain the key influence on the EUR USD exchange rate for the foreseeable future, although the Euro could be increasingly weighed down ahead of the Italian constitutional referendum. If signs point towards further political upsets coming from within the Eurozone then the single currency may struggle to consolidate any of its recent gains against the US Dollar.
Current Interbank Exchange Rates
At the time of writing, the Euro US Dollar (EUR USD) exchange rate was slumped around 1.08, while the US Dollar Euro (USD EUR) pairing was making gains in the region of 0.91.