The Euro surged to hit a 1 year high at 1.1095 in yesterday’s trading session against the US dollar amidst a round of disappointing data from the US and a more settled global investor sentiment with the previous day's concerns over the U.S. banking sector rapidly fading.
The Dollar took a hit as investors reacted to U.S. data that showed further signs of a slowdown: the durable goods report showed demand for nondefense capital goods fell by 0.4% in March, after a downwardly revised 0.7% drop in February.
The prospect of a U.S. recession in the second half of the year is growing and with it the prospect of rate cuts at the U.S. Federal Reserve, all of which combines to undermine the Dollar.
The European currency was also bolstered by expectations that the Federal Reserve will deliver their last rate hike next month of 25 basis points while the European central bank is poised to keep hiking rates to bring inflation down to their 2 percent target rate.
"The euro profited from the ECB’s unabated hawkish stance and subsiding energy concerns. The nearing end of the Fed cycle combined with local financial stability concerns meanwhile weighted on the dollar. This divergence triggered a relative loss of interest rates support for the dollar and pushed EUR/USD to a new YTD top. Next resistance kicks in at 1.1274," says Mathias Van der Jeugt, an analyst at KBC Bank.
The European Central bank will have to back up their recent hawkish stance by delivering a 50-basis point rate hike next week and anything less may cause a sell off in the Euro and market participants begin to place bets that the ECB is also nearing the end of their rate hiking cycle.
Eurozone data would need to take a material turn for the worse before such an outcome is realised, particularly as the economy continues to surprise, most recently April consumer confidence data for Germany and France both came in higher than expected.
Looking ahead today, the main driver of the EUR/USD currency pair will be the release of GDP figures from the US which may be the final bit of news which causes the Fed to finally call it quits to their rate hiking program next month.