Smooth Transition to New German Government could Push EUR/USD Exchange Rate Higher
The Euro may be on track to rise sharply against the US Dollar in the near-term, if ongoing German coalition talks finally pay off with a coalition deal agreement.
The latest hurdle has been safely passed, with SPD Party members agreeing to further discussions via a vote on 21st January.
This opens the door to a possible grand coalition agreement in the not-too-distant future, which would finally grant Germany a government after four months of talks.
A grand coalition announcement between the CDU/CSU and SPD Party may be a Euro-boosting outcome, given that the three parties have been united in this way twice before.
If a lasting arrangement seems a long way off, however, the Euro could slide in value because of trader disappointment.
Euro to US Dollar Slowdown Possible on Sliding PMI Stats
The Euro to US Dollar exchange rate has risen recently, but could drop back on 24th January when German and Eurozone-wide PMI figures are released.
In most cases, estimates are for declining services and manufacturing sector activity, which could mean lower confidence in the Euro.
If the PM stats do show a deterioration in Eurozone economic activity, the Euro could slip against the US Dollar because of lower expectations for future GDP and inflation readings.
US Dollar to Euro Exchange Rate Could Worsen on Upcoming GBP Stats
Looking ahead, the US Dollar to Euro (USD/EUR) rate could drop on 26th January when US GDP growth data for the fourth quarter is released.
During the month, expectations are for a downward revision for quarter on quarter growth, from 3.2% to 3%.
US GDP picked up sharply in Q3 and Q4 of 2017, so a downgrade could lower confidence in the US Dollar if traders think a slowdown is on the way in 2018.
Along the same lines, US durable goods orders figures for December are also tipped to show a slowdown on 26th January; this increases the chances of a USD/EUR drop in the near-term.
US Dollar Recovery Possible on Removal of Government Shutdown
More immediately than the GDP stats, the US Dollar could recover against the Euro if an imminent vote to break the current deadlock is passed.
It is thought that the Republican Party could offer some concessions to the Democrats to try and secure a yes vote, which would lift the shutdown and return the US to working order.
This may mean that the spending bill will be watered down overall if it is to be approved, as Democrat Senator Tammy Duckworth has stated;
‘Let’s at least take the simple, commonsense step that we all agree on.
Let us remove any possibility military pay and even worse, military death benefits will be used and held hostage as political leverage’.
An ongoing shutdown doesn’t reflect well on any part of government, so there is a high incentive to come to an agreement which could raise confidence in the USD as well.
Comments are closed.