Relevance up to 06:00 2022-01-22 UTC+00
The Euro continues to compete with the US dollar, trying to leave the outsider levels. However, these attempts are most often unsuccessful. The euro’s short-term growth does not have a significant impact on its overall pessimistic mood.
Over the past year, the price of the EUR/USD pair has declined by 6.9%. The weakest link of the pair, which is the Euro currency, got the most blow. Experts said that the euro should not count on major achievements this year. Its weakness contributes to the excessive caution of the European regulator.
Currently, the Fed and other central banks have expressed their readiness to normalize monetary policy as soon as possible. Experts stressed that this contrasts sharply with the ECB’s inaction. This strategy of the European regulator contributes to the further decline of the euro and increased inflation.
Markets have high hopes for the upcoming changes in the Fed’s strategy, which include cutting stimulus and raising the key rate. The currency market is now under pressure from the growth of the USD and the increase in the yield of US Treasury bonds. The US dollar’s strengthening prevents the euro from rising, but the latter does not give up.
Moreover, the growth of the yield of US government bonds supports the US currency before the Fed meeting. On Wednesday, it strengthened its position after a sharp rise in the yield of US government bonds. Markets are waiting nervously for the Fed to raise interest rates, and this sends the EUR/USD pair to new frontiers.
In the current situation, the pair found itself under bearish pressure, while the US currency strengthened amid the rising treasury yields. On Tuesday, the EUR/USD pair managed to reach the level of 1.1400, but further gains stalled. Experts said that the pair failed to develop an upward movement. On Wednesday morning, the EUR/USD pair was trading at the level of 1.1331, trying to rise higher, but failed.
On another note, the European currency is struggling due to the deterioration of market mood. This makes it difficult for the euro to attract investors. The current macroeconomic statistics in the EU did not add optimism either. The positive ZEW report on the German economy did not help the euro to increase. It can be recalled that ZEW economic sentiment index was higher than forecast and reached 51.7 points. However, for the European and American currencies, expectations related to the growth of the USD and the upcoming Fed meeting, at which the issue of the monetary policy will be resolved, are now more important.
At the same time, experts record an increase in the reasons for a further “hawkish” shift in ECB policy. The markets are currently waiting for a report on inflation in Germany for 2021. According to preliminary estimates, consumer prices in Germany will rise by 5.3% from the previous 5.2%. If the information is confirmed, the indicator will be extremely high since 1992. As a result, the new data will change the balance of power in the EUR/USD pair.
Analysts believe that euro’s growth will be moderate this year. Currency strategists doubt that it will vigorously strengthen and there will be a sharp breakthrough. The stagnation of the euro helps it maintain its current position, but prevents it from moving forward. The slowdown in its dynamics is facilitated by problems in the eurozone related to supply chains and inflationary pressures. The ECB’s indecisiveness on key monetary policy issues also exerts pressure. Specialists believe that significant changes in the EU monetary policy should be expected at the end of 2022.
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