Euro Falls

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euro vs dollar

On Monday, the euro shed a third of a percent as investors took profits following its recent rally.  Although, the outlook remains bullish for the single currency with the improving economy.

Some investors viewed the dip is the euro an opportunity to purchase the single currency as foreign exchange markets continued the idea of selling the dollar from the end of last year and Asian stocks approached all-time highs.

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“The outlook for the Fed has been already priced into the market so the uncertainty is around ECB’s policy stance though the low inflation and the strong euro will certainly be a concern for policymakers,” said Kenneth Broux, an FX strategist.

Last week, flash inflation estimates for last month across the eurozone were 1.4 percent, faintly lower than the 1.5 percent rate from November and significantly lower than the European Central Bank’s target.  Flat inflation pressure throughout Europe has been associated with a strengthening economic recovery as well as improvement in China and the United States.

“The overall economic trend is minutely supportive for the U.S. dollar as we are seeing a global recovery led by China and Europe and there is a lot of cash sitting on the sidelines waiting to buy European assets,” said Peter Chatwell, head of European rates strategy.


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The euro dipped 0.3 percent to $1.19890 following its three-month rally increasing 2 percent. The greenback started the year off on a rough start, after the dollar index dropped nearly 10 percent in 2017, its poorest performance since 2003.

Friday’s report that U.S. nonfarm payrolls increased by 148,000 jobs in December, lower than the forecast 190,000 jobs, with an unchanged unemployment rate keeping the unemployment rate at a 10-year low of 4.1 percent directed towards a healthy jobs market.

Following the release of the jobs data, traders of U.S. short-term interest rate futures continued to bet the Fed would raise rates two times this year, including the probability of an increase before the end of the first quarter.

Comments made by Fed officials on Friday and over the weekend implied that the U.S. central bank remained on target to hike up rates two times this year.  In an interview, San Francisco Fed President John Williams said that the Fed should increase rates three times this year because of an already robust economy that will improve even more from tax cuts, and can tighten more or less aggressively if needed.

 

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