On Monday, the EUR/USD currency pair hit a high of 1.1574, a 2% gain—the best day for this Euro cross in over a decade! It then pulled back from this high, a sign of the volatility that’s characteristic of currency trading. The EUR/USD, also known as Euro, is the exchange rate of the Euro against the US Dollar. Its fluctuations are influenced by many economic axes including the Federal Reserve’s monetary policy actions and important US economic data releases.
The latest upmove in the EUR/USD pair has been due to a repeat US Dollar sell-off. This sell-off is largely due to another factor: President Trump’s persistent attacks on Fed chair Jerome Powell. It’s Trump’s comments about the future state of the US economy that have raised the most concern. Consequently, speculators have started to unwind long-dollar positions. The Federal Reserve’s autonomy plays a crucial role in shaping the value of the US Dollar, as its policy decisions directly impact interest rates and economic forecasts.
Political forces are one piece of the puzzle. The performance of the US Dollar has been influenced by economic data coming out of the United States itself. Economic indicators such as employment reports, inflation, GDP growth and other metrics can boost or undermine investor sentiment and shift market conditions. As traders respond to these economic measures, sharp movements in the EUR/USD currency pair can frequently be seen.
The Aussie has rocketed against the US Dollar. It just yarded past a new yearly high in the annual ratio, cranking it up to 0.6437! This Australian emission surge is a positive sign of the improving health of the Australian economy compared to that of the United States. The Australian Dollar’s fate depends on the newly minted currency’s idiosyncratic economic datapoints. On top of all this, global commodity prices further muddy the field for currency traders.
The Forex market is very responsive to shifts in both the geopolitical and economic climate. Market participants will be watching closely for further guidance or action from the administration and Fed. The relationship between these three players will certainly continue to drive currency valuations in the weeks ahead.