The EURUSD exchange rate has dropped to the 2023 lows as investors move to the US dollar as a safe haven due to tensions with Russia.
EURUSD – Daily Chart
The price of EURUSD slumped recently and is testing the key resistance which was low in October and January of 2023. Prices will need to hold that level or the euro could fall further.
The euro dropped to a two-year low against the dollar as political turmoil in Germany and France also hurt the single currency. A closely-watched survey of business activity fell unexpectedly to 48.1 in November, down from 50 in September as contraction returned.
The purchasing managers’ index (PMI) sent the euro plunging to almost $1.03 versus the US currency, but it was able to bounce above 1.04. Yields on eurozone government bonds also fell as investors expect faster interest rate cuts. The European Central Bank has already cut rates three times this year to 3.25% and could move lower.
Markets now expect another quarter-point cut next month and a move to 1.75% by the end of 2025. Jane Foley, FX strategist at Rabobank, said the euro is moving “a step closer to parity” with the dollar.
Germany, Europe’s largest economy, saw its coalition government collapsing this month with elections not due until February. Third-quarter growth was revised downward recently from 0.2% to 0.1%.
The former manufacturing powerhouse is in crisis as demand from China slumps, and its car industry is dealing with the transition to electric vehicles. Bosch is the latest industrial firm to be hit, announcing 3,500 job cuts, while US automaker Ford is also cutting thousands of jobs and Ford is set to close as many as three factories.
In France, right-wing politicians are threatening to bring down Prime Minister Michel Barnier’s coalition in a dispute about the 2025 budget. Instability in Europe is seeing investors turn to the US dollar and tensions with Russia are also adding to capital flight from the eurozone. Russia and Ukraine traded missile and drone attacks early on Monday as the war continues to rage.
Key data this week will be minutes from the Federal Reserve’s recent meeting ahead of the Wednesday session and German consumer confidence at 3pm HKT on the day.
