The EUR/USD pair recently took a significant fall to 1.0900 as the strength of the US Dollar regained while the European Central Bank (ECB) prepares to hold a policy meeting. With growing confidence in the US economy and potential interest rates hikes from the Federal Reserve, the value of the pair has plummeted.
The upcoming ECB meeting holds much anticipation, with future policy directions on the table and uncertainty for the economic outlook in the Eurozone. The impact of geopolitical elements such as trade disputes and Brexit developments also affect the currency pair’s stability. Consequently, the pair’s volatility has heightened, with the potential of the ECB adopting a dovish stance or the US economic data continuing to impress.
Interestingly, the decline of the EUR/USD pair was stimulated by the revival of the US Dollar. It initially displayed weakness due to potential interest rates cuts, but doubt from investors about these rate cuts has seen the US Dollar regaining strength. Meanwhile, the Euro dipped as the ECB hinted towards introducing more stimulus measures to tackle slow growth within the Eurozone. These contrasting policies fostered an environment where the dollar reigned over the Euro, leading to a decline in the pair.
Further contributing to the pair’s downfall was disappointing results from the US ISM Manufacturing PMI report.
US dollar’s rebound impacts Euro amid policy uncertainties
This highlighted a drop in factory activity indicating slower growth within the manufacturing industry and created major concern for the overall health of the economy.
The dynamic was also affected by the GDP growth for the first quarter, which was revised downwards today to 1.3%. This sparked debates among experts regarding a potential economic slowdown and its effect on financial markets. Combined, these factors led to the pair’s inevitable decline.
Although a slight recovery of the US Dollar was seen, the sentiment still largely revolves around negativity for the EUR/USD. The upcoming decisions on interest rates by the ECB and anticipation of the first reduction since 2019 placed downward pressure on the Euro and currency markets worldwide.
The Harmonized index of Consumer Prices (HICP) data revealed annual price pressures for May higher than projected, partially caused by wage increase leading services. Tensions are rising in international trade relationships, particularly between the EU and the USA, due to the changes in the EUR/USD. The inflationary trends, however, predict the pair to remain on an upward curve unless falling below the 1.0800 mark, increasing downward pressure.
