The Euro (EUR) is exhibiting weakness, depreciating by 0.2% against the US Dollar (USD) and trading below the 1.13 threshold. This decline represents a continuation of the downward pressure initiated on Wednesday following the Federal Reserve’s latest policy signals, according to Scotiabank’s Chief FX Strategist, Shaun Osborne. The market is closely analyzing the implications of the Fed’s stance on future monetary policy.
EUR/USD remains range bound
“Similar to the Canadian Dollar (CAD), the prevailing sentiment driving near-term price movements for EUR/USD is the anticipated divergence in relative central bank policies. Furthermore, the spread between 2-year government bond yields has widened by approximately 20 basis points over the past week, a development that is exerting downward pressure on the Euro,” Osborne noted. This widening yield spread reflects increasing expectations of a more aggressive tightening cycle by the Federal Reserve compared to the European Central Bank (ECB).
“On the data front, Germany’s industrial production figures for March significantly exceeded expectations, indicating a robust performance in the manufacturing sector. However, the unexpectedly large trade surplus was somewhat distorted by an unforeseen contraction in imports, which is a concerning indicator of weakening internal domestic demand. This suggests that while German exports are performing well, domestic consumption may be lagging. Regarding trade relations, there appears to be no discernible progress in US/EU negotiations, a stark contrast to the recent agreement between the US and the UK. The lack of progress in US-EU trade talks could weigh on investor sentiment towards the Eurozone economy.” Market participants are now keenly awaiting the upcoming ECB policy meeting for further clues on the central bank’s strategy to combat inflation and support economic growth in the region.
