Euro US Dollar (EUR/USD) Exchange Rate Rises as Hopes Grow for EU Recovery Fund

The Euro to US Dollar (EUR/USD) exchange rate edged higher today, with the pairing currently trading around $1.143.

The Euro (EUR) edged higher as markets have hoped for further progress on the European Union’s (EU) €750 billion recovery fund. As a result, EUR investors have become more optimistic that the Eurozone’s economy could be on the road to recovery.

Many traders are expecting some progress today and tomorrow, despite concerns that the full €750 billion could still be a stretch for many EU leaders.

Brad Bechtel of Jefferies commented:

‘The mood is not too optimistic as there seems to be some significant hold outs still but if we were to get some form of agreement that would be quite positive and the worse case is a kick the can down the road meeting for later in the month or early August.’

German Chancellor Angela Merkel was downbeat about a consensus between EU leaders, however:

‘The differences are still very large and so I can’t predict that we will achieve a result this time.’

‘It would be desirable, but we also have to be realistic. And it really does take a great deal of willingness to compromise on the part of everyone if we are to achieve something that is good for Europe. In this respect I expect very difficult negotiations.’

Any signs of progress from today’s EU Summit would send the EUR/USD exchange rate higher.

US Dollar (USD) Sinks as Safe-Haven Demand Increases

The US Dollar (USD) fell against the stronger Euro (EUR) today despite increasing safe-haven demand after the US record a daily record of 77,300 new cases of coronavirus, leaving many investors concerned of a possible second wave of the virus.

Further buoying the ‘Greenback’ are US-China trade tensions after the White House is considering a blanket ban on all Chinese Communist Party members to the United States.

As a result, markets are becoming increasingly jittery on the prospect of escalating US-China trade tensions.

Meanwhile, ‘Greenback’ investors are becoming increasingly concerned for the American economy after it was revealed that 1.3 million people had filed for unemployment in the US as the world’s largest economy reels from the pandemic.

US retail sales snapped back, however, with more sales than expected reported in June.

Chris Rupkey, chief economist at MUFG in New York said:

‘The road ahead for the consumer looks a little foggy and uncertain to say the least. July spending faces the headwinds of states closing back down due to the second wave of the coronavirus. August spending is in doubt because those extra $600 a week unemployment checks stop at the end of July.’

EUR/USD Outlook: Could an Improving German Economy Buoy the Euro?

Euro (EUR) investors will be looking ahead to Monday’s release of Germany’s PPI figure for June. If this confirms forecasts and rise to 0.2%, then we could see the single currency rise on hopes for the Eurozone’s largest economy’s recovery.

USD traders will be looking ahead to Tuesday, which will see the release of the US Chicago Fed National Activity Index. Any signs of improvement could further buoy risk-sentiment and weaken safe-haven demand for the ‘Greenback’.

The EUR/USD exchange rate will be driven by risk-sentiment next week. Any signs of further progress on a Covid-19 vaccine would hinder safe-haven demand and weaken the US Dollar.