Recovering euro keeps dollar ‘gorilla’ from scuppering ECB rate outlook
The Hindu
Euro/dollar down 2.4% this year, off 5-month lows; lower euro area interest rates than those in the United States remain a headwind, but the euro seems on a stronger footing thanks in part to an improving macro backdrop; parity still a possibility further out, according to some analysts
The euro has resisted falling to parity with the dollar for now, thanks to a rosier economic backdrop, to the relief of European Central Bank policymakers who could be struggling to detach themselves from the Federal Reserve’s monetary policy outlook.
Just a month ago, the euro’s fall to five-month lows prompted talk among analysts about a return to parity against the dollar as the fragility of the euro zone contrasted with a resilient U.S. economy that boosted the dollar and prompted investors to dial back Federal Reserve rate cut bets.
Lower euro area interest rates than those in the United States remain a headwind, but the euro seems on a stronger footing thanks in part to an improving macro backdrop.
The most recent round of purchasing manager surveys, for example, showed business activity in the euro zone expanded at a faster clip than that in the United States in April for the first time in a year.
That has helped the euro recover roughly 1.7% from April’s lows to around $1.0708.
“We’re starting to see that divergence between economic performance close, offering some help to the euro,” said Fiona Cincotta, market strategist at City Index.
“That is also a cause for relief for the ECB and a reason for them to be more relaxed as well. It’s almost as if their ducks have lined up quite nicely so far.”