The US dollar fell sharply on Monday as risk-on trade and falling US Treasury yields weighed heavily on the safe-haven currency.
- Stronger German economic sentiment offers support to euro
- Single currency vulnerable to fresh signs of ECB dovishness
- EUR Monthly lows: £0.85, $1.19, C$1.52, A$1.52, NZ$1.63
- EUR Monthly highs: £0.88, $1.22, C$1.54, A$1.57, NZ$1.68
A solid uptick in the latest German ZEW economic sentiment index helped to support EUR exchange rates as the index unexpectedly jumped from 61.8 to 71.2 last month.
This improvement suggests that conditions within the Eurozone’s powerhouse economy have started to pick back up over the course of the first quarter.
As a result, fears over the prospect of another quarterly growth contraction temporarily diminished, offering the single currency a leg up against its rivals.
However, in spite of an upward revision to the final fourth quarter German GDP reading, the mood towards the single currency started to sour once again.
With Covid-19 developments continuing to weigh heavily on activity across the currency union, investors remained wary of the potential for a fresh deterioration in growth momentum.
A much sharper decline in German retail sales than forecast added to the bearish mood, leaving EUR exchange rates on the back foot.
Even so, confidence in the resilience of the German economy could start to recover in the days ahead as long as the manufacturing sector demonstrates fresh signs of growth.
Improved industrial production and factory orders figures would offer investors renewed incentive to buy into the single currency, with a healthy manufacturing sector having the potential to offset other areas of weakness.
On the other hand, a narrowed German trade surplus may leave the euro vulnerable to further selling pressure as trade conditions appear on course to weaken further.
While markets do not expect to see any change in monetary policy at the European Central Bank’s (ECB) March policy meeting, this could still prompt some euro volatility.
As long as policymakers maintain a cautious outlook on the Eurozone economy, the mood towards the single currency may weaken, especially if the prospect of future monetary loosening action appears to increase.
Another solid monthly performance in German and Eurozone business confidence indexes could help to shore up EUR exchange rates, however, as the end of the first quarter approaches.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)