EUR/USD: German political uncertainty fails to derail euro rebound - MUFG

The euro has continued to rebound against the US dollar over the past week as the initial sell off at the start of the week proved short-lived in response to heightened political uncertainty in Germany, explains Lee Hardman, Research Analyst at MUFG.

Key Quotes

“The latest attempts to form a government will remain in focus in the week ahead although they should continue to have only a limited impact on the euro. The release of the latest PMI surveys for November signalled that the German and euro-zone economies appear to have strengthened further heading into year end.  The increasingly robust growth outlook remains supportive for a stronger euro and is unlikely to be derailed by political uncertainty.”

“At the same time the US dollar is weakening across the board again undermined in part by more dovish Fed rhetoric. Persistently low US inflation is beginning to create more concern at the Fed. The flattening of the US yield curve is also sending a cautionary signal to the Fed. The Fed is still likely to follow through with one more hike this year, although their plans for a further three hikes in 2018 could prove too aggressive. The release of the latest PCE deflator report and speeches by Fed Chair Yellen and Vice Chair Dudley are the main event risk in the week ahead.”