The single European currency is under mild pressure, slipping below the 1,0850 level as the US dollar takes center stage in recent days after last week’s US hot inflation data showed that inflationary pressures remain on the table.
Yields on US government debt securities continue to be attractive with the consequence that the US dollar will maintain its attractiveness and the European currency is once again under question.
The dust from last week’s hot US inflation has yet to settle and now the prospects for a change in monetary policy from Fed before June are very slim.
From the side of the Eurozone, in general, the picture remains the same, concerns about the course of the European economy remaining on the table, with the consequence that the European currency apart from a very good corrections at the moment it seems difficult to develop a strong momentum which will sent the Euro well above from previous peak of the last few months on 1,1275 level .
Tomorrow is a critical day for the course of the exchange rate as we have the Fed meeting in which although no change in monetary policy is expected, comments on the course of the American economy, the course of inflation and any fresh thoughts regarding the prospects about reduction in key rates is expected strongly influence the pair.
On today’s agenda, the ZEW institute’s survey on the sentiment of the European economy and Housing Starts data in US stand out.
If there is no significant surprise, the sentiment in favor of the US currency is likely to be maintained but without significant excesses as investors are likely to avoid big bets ahead of Fed’s meeting tomorrow.
I remain on a wait-and-see position and I would expect much lower levels perhaps even below the level one 1,07 to think the possibility of buying the European currency.
