At the start of the week the mood seems to be favourable in maintaining the strength of the US Dollar. The US now appears to have better growth and outbreak-fighting prospects than Europe, which could be reflected in EUR/USD.
The Euro against the US Dollar fell below the 1.18 level in late March, settling at its weakest level since November 12 and heading for a more than 2% loss against the US Dollar in a month. This may be related to concerns about a surge in COVID-19 cases in Europe and the negative impact of vaccine restrictions and delays on the economic recovery.
Last week, European Union leaders insisted on the need to urgently accelerate the vaccination campaign and agreed to maintain restrictions, including those on non-essential travel. On the monetary policy front, the European Central Bank conveyed at its March meeting that it will conduct emergency bond purchases at a much faster pace over the next quarter in an effort to lower government bond yields and support the euro zone's economic recovery. Slower yield growth in Europe relative to the U.S. may be one factor that does not favor the euro.
In addition to the "battle" between the euro and the dollar, the situation of two currencies from the same side of the Atlantic, namely the euro and the British pound, may be very interesting. GBP seems to be steadily strengthening against EUR and EUR/GBP has fallen to its lowest level in over a year, testing around 0.8500. GBP/EUR seems to be gaining for the past six months, which may also show how much the European Union and the Eurozone are lagging behind other economies. What's more, the U.K. took a significant step on March 29 to ease shutdown restrictions, allowing people to meet in groups of up to six people or as two households, and reopening outdoor team sports.
Earlier, the Bank of England left monetary policy unchanged and did not signal an increase in bond buying by the central bank in the coming months. It is also unlikely that negative interest rates will be introduced, which the market was still hoping for at the beginning of the year. As a result, the divergence between the US, the UK and the Eurozone seems to be growing, which may also be reflected in currency quotations.
On the commodities market, on the other hand, WTI crude oil futures on Monday seem to be down about 1 percent, to $60 per barrel. This may be related to the blockage of the Suez Canal by a container ship that ran aground. Fortunately, the canal has already been partially unblocked and the ship pulled out of the shoal. This means that traffic and transportation on the canal could return to normal as early as this week.
Meanwhile, concerns over the new restrictions and the growing number of coronavirus infections, especially in Europe, and their impact on global fuel demand may continue to worry investors. They are also waiting for the OPEC+ meeting this week, where oil producers will decide on production limits. Back in the winter, there seemed to be a stronger belief that economies, tourism and travel would recover in the summer, which would allow oil production to rise steadily. Now that belief may no longer be as strong.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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