Euro Tries to Recoup In European trade on Monday, the euro made gains against a basket of major rivals as it attempted to recover from five-month lows against the dollar. This upward movement came alongside an improvement in risk sentiment worldwide.
Despite the current uptick in the euro’s performance, a bearish outlook persists among investors. They anticipate multiple interest rate cuts by the European Central Bank (ECB) as inflation edges closer to the 2% target.
The Price
The EUR/USD pair saw a 0.3% increase, reaching $1.0665, after hitting a session low at $1.0630. This follows a 0.8% decline on Friday, marking the third consecutive loss and reaching a five-month trough at $1.0622.
Heavy Weekly Loss
Last week, the EUR/USD pair experienced a significant tumble of 1.8%, marking the fourth weekly loss in five weeks. This was the largest weekly loss since September 2022, driven by concerns about the interest rate gap between Europe and the US.
The latest ECB policy meeting has increased the likelihood of an early 0.25% interest rate cut in June. Conversely, strong US inflation data has diminished the odds of a similar move by the Federal Reserve.
Rate Gap
Currently, the US-Eurozone interest rate gap stands at 100 basis points, and analysts predict it could widen to 125 basis points by June.
Positive Sentiment
Market sentiment has turned positive amid diminishing prospects of a full-scale war between Iran and Israel.
Iran launched drones and missiles towards Israeli territory in response to an alleged Israeli attack on the Iranian consulate in Syria. While Iran has declared its military response complete, US President Joe Biden has communicated to the Israeli government that the US will not support an Israeli counterattack on Iran.
Downward Outlook
According to analysts at City Index, the EUR/USD pair faces a bearish outlook after breaching major supports at $1.0795 and $1.0725. They anticipate the pair to initially hit $1.06, potentially dropping further to $1.05, and ultimately reaching October lows at $1.0448.
The Euro Tries to Recoup attempt to rebound from recent lows is met with cautious optimism amidst lingering concerns about interest rate differentials and geopolitical tensions. Investors are closely monitoring central bank actions and geopolitical developments for further cues on the currency’s trajectory.