- The downward trajectory of the euro against the US dollar currency pair EUR/USD is stronger, pushing the most popular currency pair in the forex market towards the support level of 1.0762, the lowest level for the currency pair in more than three months, and it stabilizes around the level of 1.0782 at the beginning of trading on Thursday.
- The euro's losses continued as the euro zone suffers from slowing growth and political uncertainty, and the United States continues to enjoy economic flexibility.
Commenting on this, forex strategy experts and market analysts say that price differentials, market sentiment and political risks are likely to keep the euro against the US dollar exchange rate EUR/USD under pressure in the short to medium term. They point to a variety of factors contributing to the current trend, with some emphasizing the role of price differentials and market sentiment.
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For his part, Kit Jocks, forex expert at Société Générale Bank, notes that the absence of important US economic data this week has left bond investors, and thus the foreign exchange market, in a state of unease. This week is devoid of meaningful US data, and bond investors are nervous. The forex market is looking at the bond market and is also nervous.
Achilles Georgopoulos, a market analyst at Trading Point, says, "The US dollar continues to enjoy strong demand, outperforming its major peers. In particular, EUR/USD is trading at its lowest level since early August." At the same time, the analyst pointed out that the political uncertainty surrounding the upcoming US presidential election could strengthen the dollar as investors seek safety.
“There is a common theme that could explain these moves,” he explained. “The US presidential election is acting as a rising tide that lifts all boats, as investors seek protection from a potentially negative market outcome.”
With the US election approaching, the analyst suggested that market participants are preparing for different scenarios, including the possibility of a disputed election result, which could evoke memories of the 2000 election. He also said: “It is up to the market to decide whether a Trump or Harris win would trigger a risky reaction, but market participants may also be preparing for a repeat of the 2000 presidential election, when the outcome was announced in the courts almost a month after the election date.”
The future of the US dollar’s rise
The divergence in global central bank policies also remains a key driver of the EUR/USD pair’s rise. In this regard, Lloyds Bank’s forex analysts highlight the impact of spreads over recent weeks:
“Spreads remain the main driver of forex volatility with Fed rate cut hopes diminishing and ECB rate easing expectations increasing as the main catalyst over the past few weeks.” They point out that market pricing for rate cuts has been adjusted across major central banks, narrowing the gap between the US Federal Reserve, the European Central Bank and the Bank of England.
They added, "The increasing convergence of market expectations for interest rate cuts has led to a re-pricing of rate cut expectations until next summer, with a barely noticeable gap between the Fed, ECB, and BoE, emphasizing the increasing convergence of market expectations for interest rate cuts."
At the same time, the US dollar rally still has some way to go, pointing to a “disconnect” in fundamental market expectations, particularly regarding the strength of US growth. Also, they suggest that current US rate cut expectations may be overly pessimistic about the risks of downside growth. Meanwhile in the eurozone, there may be an inadequate perception of the risks posed by the region’s economic recession. While the eurozone may not have enough downside pricing, especially with the current economic malaise risking lower inflation again.
Overall, the US economy appears resilient with a trend growth rate more than double that of the single currency area, much higher productivity, and lower structural risks. The interest rate backdrop remains supportive of the US dollar.
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