Euro to US Dollar Exchange Rate Surge Limited despite Lower Safe Haven Demand
The Euro to US Dollar (EUR/USD) exchange rate briefly surged when markets opened on Monday, as investors preferred the Euro (EUR) to the safe haven US Dollar (USD). However, the Eurozone’s latest data reignited Eurozone growth concerns and weighed on the pair.
Despite US Dollar weakness, EUR/USD has still slipped in recent weeks as data continued to indicate that the Eurozone’s economy is slowing. Last week saw EUR/USD slip from 1.1337 to 1.1318.
This week so far, EUR/USD briefly jumped to 1.1377 on a fresh US Dollar selloff, but the latest Eurozone data meant investors were hesitant to keep buying the pair. At the time of writing, EUR/USD trended just above the week’s opening levels.
Continued concerns that the Eurozone’s economic outlook will weaken into next year, combined with signs of slower Eurozone inflation, prevented the Euro from capitalising on US Dollar weakness.
Euro (EUR) Exchange Rates Unappealing as Eurozone Manufacturing Slows
While Eurozone manufacturing printed slightly stronger than projected on Monday morning, the final November Eurozone manufacturing PMIs still had concerning implications for the Eurozone growth outlook.
November’s final manufacturing PMIs beat forecasts in France, Germany and the Eurozone overall. However, they still showed notable slides from October’s figures.
Germany’s manufacturing print slowed from 52.2 to just 51.8, while the overall Eurozone print slowed from 52 to 51.8.
According to Chris Williamson, Chief Business Economist at IHS Markit:
‘November’s PMI data underscore the extent to which manufacturing conditions have become more challenging, indicating that production could act as a drag on the Eurozone economy in the fourth quarter.
Manufacturers reported that demand is now falling in Germany, France and Italy, while only modest growth was recorded in Spain.’
As a result of the Eurozone’s slowing growth outlook, the Euro was unable to capitalise on US Dollar weakness.
US Dollar (USD) Sold as Safe Haven Currencies Lose their Shine
The US Dollar weakened on Monday, as investor reacted to the weekend’s news that the US and China had finally made some solid progress on trade relations, following months of escalating action and tension between the nations.
US President Donald Trump and China President Xi Jinping announced that there would be a 90-day truce on trade tensions, during which time the nations would not escalate trade action further and would negotiate a broad range of issues.
With US-China trade tensions not expected to worsen for three months, as well as hopes that things could de-escalate as a result of negotiations, fears of slowing global growth lightened slightly.
Following this, investors saw less reason to hold into safe haven currencies like the US Dollar as risk-sentiment rose.
While the US economic outlook is still solid, various factors weighing on market safe haven demand have limited US Dollar strength. According to analysts from MUFG:
‘The reduction in global trade tensions has delivered a second successive blow for the US Dollar. It follows hot on the heels of the recent dovish shift in Fed communication,’
Euro to US Dollar (EUR/USD) Exchange Rate May Struggle to Climb Without Eurozone Support
Hopes for US-China trade tensions to lighten over the next three months, combined with lower Federal Reserve interest rate hike bets, are likely to leave the safe haven US Dollar weaker overall.
However, despite US Dollar weakness the Euro to US Dollar (EUR/USD) exchange rate may struggle to advance without much drive behind the Euro.
Tuesday’s data is unlikely to change that either, with the only notable Eurozone data being relatively low-influence October PPI stats.
This means perceived shifts in risk-sentiment will be driving EUR/USD movement until a little later in the week, when many key Eurozone and US ecostats will be published.
If Eurozone services or retail sales stats impress investors on Wednesday, this could leave the Euro more appealing and help it capitalise on the market’s higher risk-sentiment.
Of course, Friday’s Eurozone growth rate projections and US Non-Farm Payroll results are highly anticipated too and could influence the Euro to US Dollar (EUR/USD) exchange rate outlook at the end of the week.
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