Monthly Wrap: EUR – Euro gains on USD weakness; capped by ECB decision

By Philip McHugh on September 17, 2021

Key takeaways:

• Euro undermined by a dovish ECB
• USD weakness elevated the euro, alongside inflation data.
• 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 (EUR) opened the month trading low against the majority of its peers, on a lack of Eurozone data: EUR found direction on its strong negative correlation with the US dollar (USD).

A strong upward trend gripped the euro mid-August as traders digested the Federal Open Market Committee (FOMC)’s latest minutes, which propelled the US dollar higher at the expense of the euro.

The single currency also dipped as poor manufacturing PMIs for Germany and the euro area suppressed trading sentiment. These losses were soon reversed, however, as the US dollar lost support ahead of Fed Chairman Jerome Powell’s Jackson Hole speech.

The end of August saw the euro continue climbing on strong Eurozone inflation. The bloc’s consumer price index revealed inflation soared to a 10-year high in August.

The start of September the saw EUR exchange rates falter again Eurozone retail sales dropped -2.3% but losses were capped by a weakening of the US dollar. A surprise expansion in German factory orders the following day also limited euro downside.

The following week, German economic sentiment limited gains, reporting a fall for the fourth consecutive month.

Losses were extended as the European Central Bank (ECB) said it would start conducting a moderately lower pace of net asset purchases for the rest of the year – but reiterated that the PEPP envelope would not change until at least the end of March 2022.

Looking ahead, Germany’s imminent election is likely to infuse some volatility into the euro over the next month, as the end of Angela Merkel’s era as Chancellor is bound to create uncertainty.

EUR investors will also continue to keep an eye on Eurozone data releases in the coming weeks, although any upside in the single currency stemming from positive releases may remain limited in the face of the ECB’s current dovish stance.