The euro’s rally has lost its strength and the common currency is drifting lower, snapping eight straight winning sessions. The euro US dollar exchange rate closed 0.8% on Monday. After gaining1.6% against the greenback last week, the pair is 1% higher this week as investors continue to price in an interest rate cut from the Federal Reserve but limited action from the European Central Bank.
At 08:30 UTC, EUR/USD was trading -0.2% lower at US$1.1107.
Euro Loses Strength As ECB Expected To Take Action
In the previous session the euro was the strongest performer amongst major peers, despite coronavirus spreading across the continent. The OECD yesterday warned on the effect of coronavirus on the global economy. The international organisation expects to see 0.5% slashed off global growth, pushing into a global recession.
It is certainly not impressive fundamentals which pushed the euro higher. Manufacturing PMI data yesterday showed that the sector was still in contraction, although the rate of contraction has slowed. Overall, growth is lacklustre at best.
Instead, investors are focusing on the ECB and its expected response to coronavirus. The ECB already has interest rates at historically low levels and has an aggressive bond buying program. This means that any action that the ECB can take is limited.
That said, investors are starting to price in a small rate cut of 10 basis point by the ECB when they meet next week. Previously expectations had been for a fiscal response to the economic impact of the coronavirus outbreak rather than a monetary policy response.
Today there is plenty of eurozone data for investors to focus on, including eurozone inflation and the unemployment rate.
Fed To Cut Rates
The dollar, on the other hand, has been out of favour as investors bet on the Federal Reserve easing policy in an attempt to shore up the US economy and counter the negative impact from the spread of coronavirus on the economy.
Panic in the global markets prompted the Fed Chair Jerome Powell to step in late on Friday, hinting that the Fed could cut interest rates as soon as the March meeting.
Today there is no high impacting US economic data. Investors will look ahead to tomorrow’s ADP private payroll figures and the USM non manufacturing figures.
