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Monthly Wrap: EUR - Euro pressured by dovish ECB and Europe’s Covid resurgence

currency-newsMonthly Wrap: EUR - Euro pressured by dovish ECB and Europe’s Covid resurgence
Key takeaways:
 
  • Euro dented by ECB’s dovish bias
  • Renewed Covid anxiety also undermines EUR
  • EUR Monthly lows: £0.85, $1.17, A$1.59, NZ$1.65, C$1.48
  • EUR Monthly highs: £0.86, $1.19, A$1.64, NZ$1.72, C$1.51
The euro trended broadly lower over the past month, with the single currency slumping to a new year-to-date low against the US dollar.

The weakening of EUR exchange rates has been in large part driven by the policy divergence between the European Central Bank (ECB) and the other major central banks.

Whilst the Bank of England and Federal Reserve look to begin tightening monetary policy, the ECB remains committed to its highly accommodative policy. With ECB President Christine Lagarde repeatedly playing down the prospect of the bank beginning to hike interest rates in 2022.

Also exerting pressure on the euro has been a worrying rise in new Covid infections across the Eurozone. The Netherlands has introduced stricter restrictions whilst Austria has imposed a new national lockdown as they report record rises in daily cases.

However there have been some bright spots for the euro, thanks to some surprising upbeat EUR data releases.

Economic growth in the Eurozone was confirmed to have accelerated to 2.2% in the third quarter according to the bloc’s latest GDP release, whilst November’s preliminary PMIs also report a surprise expansion of the manufacturing and services sectors.

Looking ahead, the euro could face an uphill battle over the coming month if Europe’s Covid situation continues to deteriorate. EUR investors will be particularly wary of either Germany or France imposing restrictions, as they would disproportionately impact the Eurozone economy.

Elsewhere, the Eurozone’s upcoming data releases may also weigh on the single currency, if they broadly point to a slowing of fourth quarter growth.
 
Philip McHugh

Philip McHugh

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)

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