Euro Trapped in the Range as US Dollar Takes off Elsewhere. Where to for EU.1
Euro Trapped in the Range As US Dollar Takes Off Elsewhere
Euro Trapped in the Range as US Dollar Takes off Elsewhere
The European Union’s most important currency has fallen to 20-year lows this week, and it could fall further if the dollar continues its strong climb. Traders have been looking to the dollar as the best bet for a safe-haven investment after a string of data releases that has pointed to a slowing economy.
Inflation has driven everything from groceries to utility bills higher, and Europe’s economic slowdown appears to be worsening. The latest Sentix Index showed investor confidence in the 19-country euro zone fell to its lowest level since May 2020.
A weaker euro also means it’s harder for American companies that do a lot of business in Europe to bring earnings back home, a situation that can hurt the economy.
Despite the Euro’s weakness, it’s still the world’s dominant trade and central bank reserve currency. The dollar has been hitting 20-year highs against most currencies it competes with, boosting the appeal of the greenback for investors.
The dollar has also benefitted from its status as a safe haven, which has kept investors comfortable during the war in Ukraine and other crises. That has helped push the currency higher against most G10 currencies, including sterling and South Korea’s won.
If the dollar were to continue its rise, it would likely drive up prices for commodities and other goods around the globe, making them more expensive in the United States. This could reduce consumer spending and business profits, raising recession fears.
But a stronger dollar would also help lower the cost of imports for Americans, and could boost tourism to Europe. That would help ease some of the relentless inflation that has sent household and business costs soaring.
However, the stronger dollar also makes it more difficult to borrow euros and other European currencies in the United States, and that has contributed to the euro’s decline. And that, in turn, has fed into concerns about the euro’s long-term prospects.
EUR/USD has been trapped in a 1.0100 – 1.0270 range for 10-days, and it’s now eyeing a three-month low. That makes it tough to see what direction the exchange rate will go in, but there is an upside potential if the market decides to break above these levels.
As for EUR/GBP, it’s still seen in a short-term consolidation phase as there is little appetite for the pound among bullish equity markets. Today’s UK Services PMI data will provide some clues as to whether the currency is moving higher or not.
The euro is a key factor in the economic outlook for the European Union and its 19 member countries, so its value will be closely watched. ECB President Mario Draghi is speaking this morning and then a slew of GDP and CPI data will be released for the Eurozone and Canada.