19.07.2023 – There’s life in the old dog yet: Not so long ago, the European single currency fell below parity with the dollar. That was last fall. And now the euro is enjoying its longest rally in almost two decades. We take a look at the background.
According to the Bloomberg news agency, the euro has just achieved its longest winning streak since 2004. The EURUSD was last as strong as it was in February 2022. Here is the daily chart.
Soruce: Bernstein Bank GmbH
The strength of the euro is actually a dip in the U.S. currency – namely, it has recently lost value against some major currencies.
Yellen talks down inflation
Recently, U.S. Treasury Secretary Janet Yellen created a bearish mood for the dollar. In an interview with Bloomberg TV, she explained that the U.S. is making good progress in reducing inflation. Speaking from the G20 meeting in India, she said, “the most recent inflation data were quite encouraging.” And the U.S. economy will not slip into a recession, she added.
Thus, the main reason for dollar weakness still lies in data from about a week ago. That’s when the U.S. had reported a Consumer Price Index for June that had climbed weaker than expected. Specifically, the CPI rose 0.2 percent month-over-month and 3.0 percent year-over-year. Ergo, hopes rose for an end to the tightening cycle – after all, the Federal Reserve now has fewer arguments to raise interest rates.
Interest rate differential with Euroland
In Europe, on the other hand, the end of interest rate hikes is probably still a long way off. According to Eurostat, the statistics authority, inflation in the euro area fell to 5.5 percent in June 2023, down from 6.1 percent in May. You can see that inflation is still far above that in the United States. In addition, the European Central Bank still has room for improvement in the key interest rate, which stands at 4.0 percent in the euro zone. In the U.S., it is between 5.0 and 5.25 percent.
The development of EURUSD is indeed astonishing, because apart from monetary policy, there are some factors that speak more in favor of an investment in the U.S. than in Europe. As there would be a solid energy policy, where the economy is not threatened with migration. Or the abundant natural resources in the USA, such as oil or natural gas. In addition, the greenback is always in demand as a safe haven when crises rage. Ukraine and Taiwan are just two of them. We keep an eye on the development for you and wish successful trades and investments!
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