The Euro (EUR) is currently exhibiting weakness, depreciating by 1.5% against the US Dollar (USD). This represents the most significant single-day decline for the Euro since early November, coinciding with the period surrounding the US presidential election, according to insights from Scotiabank’s Chief FX Strategist, Shaun Osborne. This movement reflects a broader reassessment of global economic factors influencing currency valuations.
Yield moves in Europe fail to keep pace with US
“The evolving outlook for relative central bank policy is exerting downward pressure on the EUR. The easing of tensions surrounding the US/China trade agreement is prompting a continued reassessment of the outlook for Federal Reserve easing. Market participants are now pricing in at least 10 basis points less in rate cuts by December,” Osborne stated. This shift in expectations regarding Fed policy is contributing to the Euro’s underperformance. The market is now anticipating a less aggressive easing cycle from the Federal Reserve than previously projected, bolstering the US Dollar and consequently weighing on the Euro.
“European bond markets are also experiencing losses, reflected in rising yields, but these increases are not keeping pace with the yield gains observed in the United States. This disparity in yield movements further contributes to the Euro’s weakness against the Dollar. From a data perspective, the key event this week will be the release of the ZEW investor sentiment index, scheduled for Tuesday. This release will provide valuable insights into the economic outlook for the Eurozone. Furthermore, there are at least 10 scheduled speaking engagements by ECB officials this week, and market participants will be closely monitoring these appearances to ascertain whether policymakers maintain their current dovish stance on monetary policy.” Any indications of a continued commitment to accommodative policies by the ECB could further exacerbate the Euro’s downward trajectory. The market will be particularly sensitive to any signals regarding the ECB’s assessment of inflation and economic growth prospects within the Eurozone.
