After yesterday's press conference by Christine Lagarde, head of the European Central Bank, the exchange rate of the main currency pair EUR/USD fell below the level of 1.08 for the first time since May 2020.
Investors may have felt let down by the ECB's attitude. Prior to the April meeting of the bank's policymakers, the market priced that interest rates in the Eurozone would rise by 70 basis points this year. After yesterday's announcement and the press conference of the head of the ECB, the valuation dropped to 60 points.
The ECB is reluctant to...
The ECB's statement implies that interest rate adjustments in the euro area will be gradual and will start "some time after" the end of the APP net asset purchase program, which is expected in Q3 this year.
The fall of the euro and investor sentiment may also be affected by the war unleashed by Russia, rising commodity prices, concerns about slowing economic growth, as well as doubts about the outcome of the presidential elections in France. In the first round, the current President Emmanuel Macron won, but the far-right candidate Marine Le Pen came in second with a small loss and a chance to win the presidential seat in the second round on 24 April.
EUR/USD: the specter of the 1.00 level
All of the above factors may have contributed to EUR/USD falling back towards 1.080 during Thursday's session in an attempt to rebound on Friday. The pressure on the single currency may continue until the second round of the French elections, and if Le Pen wins it could push EUR/USD to the 1.0000 level.
The war in Ukraine could makes Europe more vulnerable to economic slowdown than the US, which may also leave its mark on the major currency pair. Another asset of the dollar here seems to be the tendency of the Federal Reserve to raise interest rates faster. The market is currently pricing two consecutive 50-basis-point rate hikes in the United States, which may keep the divergence in monetary policy high and translate into EUR/USD exchange rate.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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