Euro back below 1.10

Published on 09.05.2023 14:34

The Euro is down for a 2nd straight day against the US dollar, remaining firmly below the 1.10 mark after a disappointing round of data yesterday threw into questions the amount of further rate hikes to be delivered by the European central bank.

Data released on Monday showed a decline in German March Industrial Production, with a drop of -3.4%, against expectations of a 1% slide. The Sentix Investor Confidence dropped from -8.7 to -13.1, versus the market consensus of -8.

European Central Bank (ECB) Chief Economist Philip Lane also noted yesterday that there was "a lot of disinflation" coming later this year but warned that inflation still has "a lot of momentum". Which has raised doubts about an expected 25 basis points rate hike at the June 15 meeting. Lane will speak again on Tuesday, and Isabel Schnabel, an executive member of the ECB governing council, is scheduled to deliver a speech during the American session.

The inability of the European currency to go past the 2023 high at 1.1095 carries the potential to spark a deeper corrective decline in the short-term horizon with the immediate targets at the monthly low at 1.0941 which was hit on May 2nd and the weekly low at 1.0909 reached on April 17th.

EUR/USD also faces renewed downside pressure in response to the resurgence of the risk aversion and the consequent investors’ move towards the greenback.

The movement of the euro's value is expected to closely mirror the behaviour of the US Dollar and will likely be impacted by any differences in approach between the Fed and the ECB with regards to their plans for adjusting interest rates.

The movements in interest rates from the respective central banks may become evident tomorrow with the release of consumer price index figures from Germany, Europe’s largest economy which will be followed by the release of the same news from the USA.

These 2 pieces of economic news will definitely be a significant driver as to whether rates remain on hold or pushed up even further.