FINAM FOREX: Difference in approaches of ECB and FRS contributes to weakening of euro


02 March 2021

Anna Zaitseva, analyst, FINAM Group

On Tuesday, March 2, the EUR / USD was down 0.20% at 1.20250, while the DXY dollar index added 0.16% to trade at 91.188. At the end of the previous trading session, the major currency pair dropped 0.13% to 1.20493, while the DXY index rose 0.17% to 91.036.

The weakening of the single European currency was facilitated by yesterday’s statements by the head of the ECB Christine Lagarde that the regulator is concerned about the recent jump in government bond yields and intends to use its instruments to prevent their further growth in order to prevent an unwanted increase in the cost of borrowing for business and the population.

At the same time, the FRS interprets the increase in the yields of US Treasury bonds differently and even sees this as a positive change in the inflationary expectations of investors. At the same time, the Fed has not yet hinted at a possible targeting of the government bond yield curve. Thus, the difference in the approaches of the ECB and the Fed creates an advantage for US Treasuries over their European counterparts, which contributes to the weakening of the euro against the US dollar.

In terms of macroeconomic statistics, yesterday in the eurozone, Germany and the US were published the final data on PMIs in the manufacturing sector from Markit for February. The final estimates of indicators in all three jurisdictions were revised upward, but in the States the February value of the index was lower than the result for January.

Also yesterday, inflation data became known in Germany. According to preliminary data, in February the CPI index increased by 1.3% (YoY) against a gain of 1.0% (YoY) a month earlier, exceeding the consensus forecast of + 1.2% (YoY).

In the US, was released data on the index of business activity in the manufacturing sector from the ISM. So, in February, the value of the indicator increased by 2.1 percentage points, to 60.8 points, while analysts expected a more modest growth to 58.8 points.

Construction spending in the United States rose in January by 1.7% (MoM) against an increase of 1.1% (MoM) a month earlier and the consensus forecast of + 0.8% (MoM).

Today it will be necessary to monitor the publication in Germany of data on retail sales and the unemployment rate; in the eurozone, inflation data will become known, and in the US, the economic optimism index from IBD / TIPP will come out of important indicators.

The EUR / USD rate is approaching the level of 1.2000, which currently acts as a support. If this level is broken, the target of further movement will be the level of 1.1900, then – 1.1800. At the same time, stochastic lines are near the oversold zone, which indicates a limited potential for quotes to decline in the short term.

This information is not investment advice.

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