The Euro to US Dollar (EUR/USD) exchange rate has seen intensifying volatility and fluctuations since last night, as the results of the 2020 US Presidential Election turn out to be far less clear than expected.
Since opening this week, EUR/USD been trending with a largely downside bias as investors continue to avoid risks. EUR/USD opened the week at the level of 1.1676 and has touched on lows of 1.1617. This is the worst level for the pair since July.
EUR/USD has attempted to gain on hopes that the election result will become clearer soon, but these gains have been limited and volatile.
At the time of writing on Wednesday afternoon, EUR/USD trends near the region of 1.1713. The pair is still well below last week’s opening levels of 1.1862.
After weeks of rising bets that the US 2020 Presidential Election would be a clear win for Democratic Party challenger Joe Biden, the first results last night showed a far tighter race than expected.
As a result of this, global market safe haven demand rose. Investors bought safe havens like the US Dollar over the Euro amid concerns that the election could become contested, lead to potential recounts or court cases or even civil unrest.
Despite this though, hopes persist that the election result will ultimately be a clear one.
Hopes for an eventually solid result have kept the safe haven US Dollar from rising too much.
The US Dollar’s appeal has also been limited by today’s US data. Underwhelming US job market data from ADP indicated that the US economy was not weathering the coronavirus pandemic as well as hoped.
The Euro, on the other hand, has also seen mixed movement today. This is only worsening EUR/USD volatility.
The Eurozone’s coronavirus outlook is worsening, with major economies like Germany and France seeing new restrictions to tackle the second wave of the pandemic.
Today’s Eurozone PMI data did beat forecasts slightly. However, concerns that the Eurozone economy would see another slowdown in Q4 amid coronavirus restrictions are dampening market optimism around Eurozone ecostats.
The Euro to US Dollar exchange rate will continue to be driven by coronavirus developments in the coming days, but the biggest focus will remain the US 2020 Presidential Election.
If results continue to paint a tight race, the possibility of a contested result will rise and investors are more likely to hold onto safe havens like the US Dollar.
A clearer result would help to calm markets though, and could lead to the US Dollar shedding much of its recent gains.
Due to the record number of mail ballots this year amid the coronavirus pandemic, some reports suggest that the final results could take days or even weeks.
Markets are paying especially close attention to the results from Pennsylvania, a State which is being seen as the tipping point for the winner.
While the US 2020 Presidential Election will remain the biggest focus for global markets, tomorrow’s Federal Reserve policy decision could be influential as well.
If the Fed takes on a more dovish tone due to political or coronavirus uncertainty, the Euro to US Dollar exchange rate would be more likely to sustain gains.