HomeContributorsFundamental AnalysisEuro Gains Ground As US Political Turmoil Intensifies

Euro Gains Ground As US Political Turmoil Intensifies

The euro has edged downwards in the Thursday session, after recording gains in the past three daily sessions. Currently, EUR/USD is trading at 1.1120. In the eurozone, there are no major economic events on the schedule. The president of the ECB, Mario Draghi, will speak at an event at the University of Tel Aviv. In the US, we’ll get a look at unemployment claims and the Philly Fed Manufacturing Index.

The euro continues to gain ground, as EUR/USD has risen 1.7 percent this week and is currently trading at 6-month highs. The currency has received a boost from the growing political uncertainty which has gripped Washington. Facing relentless pressure from Democrats and some Republicans, the Justice Department has appointed a former FBI director as special counsel to investigate possible Russian involvement in the US presidential election as well as any connection between Trump and the Russians during the election campaign. On Tuesday, media reports surfaced that Trump asked former FBI director James Comey to end an investigation into ties between Russia and Trump’s former security adviser, Michael Flynn. As if this wasn’t enough of a headache for Trump’s team, the president is under fire for passing classified intelligence to the Russian foreign minister. Trump initially denied the claim, but has since admitted that he did share intelligence with the Russians, arguing that he had acted within his rights. With the Trump administration frantically trying to douse political fires, investors are growing increasingly nervous that Trump’s plans for a stimulus package and tax reform will stall, and these jitters have sent stock markets and the US dollar downwards.

The markets did a good job forecasting key consumer indicators in the eurozone. Final CPI for April matched the forecast with a strong gain of 1.9% in April, considerably higher than last month’s gain of 1.5%. Eurozone inflation is closing in on the ECB’s target of 2.0%, which could increase pressure on the ECB to consider tapering its ultra-loose monetary policy. There are voices in Germany and elsewhere in the euro-area which want Brussels to adopt a tighter monetary policy. On Tuesday, Eurozone Flash GDP for the first quarter was unrevised from the April forecast, posting a gain of 0.5% in the first quarter. The eurozone continues to show improved numbers in 2017, boosted in no small part by the German economy, which expanded 0.6% in the first quarter.

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