Monthly Wrap: EUR – Dovish ECB undermines the euro

Currencies Direct August 19th 2021 - 2 minute read

Key takeaways:

–              ECB’s dovish bias limits the appeal of the Euro
–              EU’s rapid vaccination rollout may have cushioned the downside
–              EUR Monthly lows: £0.84, $1.17, AU$1.59, NZ$1.66, C$1.47
–              EUR Monthly highs: £0.87, $1.19, AU$1.62, NZ$1.71, C$1.51

The euro traded in a wide range over the last month, with data from the Eurozone painting a mixed picture of the bloc’s economic recovery.

A dovish European Central Bank (ECB) put some pressure on the single currency following the ECB’s interest rate decision last month. While economists had expected the central bank to keep its rates unchanged, some rather vague forward guidance disappointed EUR investors nonetheless.

The euro managed to gain against many of its counterparts towards the end of July as the eurozone published some strong data. Both Germany’s and the Eurozone’s flash PMIs smashed expectations, while economic sentiment in the euro area hit an all-time high.

However, heading into August the euro shed some of its gains. German GDP and retails sales missed forecasts, and the services PMIs for both the Eurozone and Germany were revised lower, denting EUR.

With mixed data releases, the single currency was unable to make much headway as the month continued. A slump in the Eurozone’s economic sentiment put further pressure on EUR exchange rates.

Looking to the month ahead, it’s possible that mostly positive Eurozone data could once again be undermined by weaker data from Germany. For instance, German manufacturing activity is expected to slow this month, while the country’s retail sales are forecast to have contracted by 1.6% in July. Such negative data from the Eurozone’s largest economy could weigh heavily on the euro.

If the EU’s vaccination programme continues to accelerate, this may boost both economic sentiment in the bloc and EUR exchange rates – especially if the EU outpaces the UK.

Finally, the ECB’s next interest rate decision in early September could also drive some movement in EUR. If the central bank disappoints EUR investors again, the euro could slip.

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Currencies Direct

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