EUR/USD Exchange Rate Sinks as Eurozone Economic Outlook Darkens
The Euro to US Dollar (EUR/USD) exchange rate fell by -0.4% today after March’s Eurozone composite PMI report fell deeper into contraction territory than previously forecast, with the figure falling from 31.4 to 29.7. The pairing is currently trading around $ 1.07.
Chris Williamson, the Chief Business Economist at HIS Markit, was downbeat in his assessment, and painted a bleak picture of the Eurozone’s economy going forward:
‘No countries are escaping the severe downturn in business activity, but the especially steep decline in of Italy’s service sector PMI to just 17.4 likely gives a taste of things to come for other countries as closures and lockdowns become more prevalent and more strictly enforced in coming months.’
‘However, the ultimate economic cost of the COVID-19 outbreak cannot be accurately estimated until we get more clarity on the duration and scale of the pandemic.’
Meanwhile, divisions within the Euro-area are continuing to grow over ‘coronabonds’, a joint mutualised bond to aid countries particularly affected by the coronavirus, such as Italy and Spain.
Consequently, the Euro has fallen against the stronger US Dollar on fears that the EU’s unity could be threatened by the Covid-19 pandemic.
US Dollar (USD) Rises Despite Record Levels of Unemployment
The US Dollar (USD) continued to edge higher against the Euro (EUR) despite a record number of Americans – 6.6 million – filing for unemployment last week.
Michelle Meyer, head of U.S. economics at Bank of America, commented:
‘These are numbers that are way out of the range that we have seen. During the financial crisis, we were seeing a peak of about 650,000 [first-time applications] a week.’
Today also saw the release of the March US Nonfarm Payrolls report for March, which plummeted to a worse-than-expected -701,000 despite estimates of a mere -100,000 drop.
US unemployment data also rocketed up from record lows of 3.5% to 4.4%, leaving many ‘Greenback’ investors concerned about the American economy in the weeks ahead.
Meanwhile, Morgan Stanley’s team of economists have predicted that the US economy could drop by as much as -38% in the second quarter.
Morgan Stanley analysts said in their statement:
‘We expect the U.S. economic recovery will be more drawn-out than previously anticipated, marked by a deeper drop into recession and slower climb out.’
The USD/EUR exchange rate has, however, continued to benefit from safe-haven demand, with investors shunning risky assets in favour of the relatively secure ‘Greenback’.
EUR/USD Forecast: ‘Greenback’ to Benefit from Rising Safe-Haven Demand
Euro (EUR) investors will be looking ahead to Monday’s release of February’s German Factory Orders report. However, any further bad news regarding Germany’s manufacturing sector could push the EUR/USD exchange rate downwards.
The US Dollar (USD) will likely hold onto its gains early into next week as markets prepare for yet another week of coronavirus developments. With the global economy continuing to teeter towards recession, we could see safe-haven demand boost the ‘Greenback’ higher.
The EUR/USD exchange rate will also continue to fall if there are any further signs of discord within the European Union over its fiscal practices. However, these could be relieved be an easing number of coronavirus cases in countries like Spain and Italy.
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