Improved confidence in the Eurozone this week has meant easy gains for the Euro US Dollar exchange rate. The exchange rate’s outlook is significantly brighter too, as political stability rises in the Eurozone while uncertainty worsens in the US.
The past week has seen EUR USD rise from the week’s opening level of 1.0930 to 1.1167 – its best rate since October 2016. The pair looks to end the week relatively close to these highs.
Earlier in the year, investors were highly anxious about the future of the Eurozone’s political stability while being optimistic that the US political situation would lead to a stronger US economy.
In the last few weeks however that all appears to have shifted. The Euro is now back in favour and the US Dollar has tumbled in the face of rising US political jitters.
New French President Emmanuel Macron has impressed traders in his first week in office by signalling that he will work with German Chancellor Angela Merkel to strengthen the Eurozone.
Hopes that Macron will be able to find support in French parliamentary elections have also risen, as Macron has picked officials from the left, centre and right to join his team.
To top it off, this week saw the publication of multiple solid ecostats from the Eurozone which have bolstered hopes for continued economic strength from the bloc.
Gross Domestic Product (GDP) projections came in at 0.5% quarter-on-quarter as expected and inflation came in at 1.9% year-on-year in April. France’s unemployment rate improved from 10% to 9.6%, the first rate below 10% for the nation since 2012.
Over in the US, an increasing number of scandals have piled on controversial US President Donald Trump this week. Among them, Trump admitted to giving intelligence information to Russian officials. Reports also emerged that Trump had asked ex-FBI Director James Comey to drop the investigation against Michael Flynn.
Comey’s predecessor, Robert Mueller, was announced as a special prosecutor to continue Comey’s Trump-Russia investigation, following Trump’s sacking of Comey.
The mounting uncertainty surrounding Trump has weighed on market hopes that Trump will be able to pass tax and infrastructure legislation, which had been the main reasons markets were excited about a Trump Presidency to begin with.
Bets of a Federal Reserve interest rate hike happening in June have even dropped due to the Trump news. While they have recovered from below 70%, they remain below the 85% highs seen earlier in May.
Next week’s ecostats are likely to influence the Euro US Dollar exchange rate outlook further, though any Trump news that emerges over the weekend will of course have the potential to impact the US Dollar.
Tuesday will see the publication of the Eurozone’s preliminary May PMIs from Markit. Of particular interest to investors will be Germany’s PMIs, and the Eurozone’s as a whole.
These will indicate how the Eurozone economy is performing in May. If they beat expectations, hopes that the Eurozone to see strong economic activity throughout 2017 will rise.
For US investors, the main event next week (besides potential Trump news) will be the publication of the latest Q1 Gross Domestic Product (GDP) projections. Other notable data due includes new home sales, existing home sales, Fed meeting minutes and durable goods orders.
At the time of writing this article, the Euro US Dollar exchange rate trended in the region of 1.1150. The US Dollar to Euro exchange rate traded at around 0.8965.