At the end of February, the single European currency weakened against the US dollar by 0.52%, to the level of 1.20649.
US government bond yields put pressure on euro
One of the key factors contributing to the depreciation of the EUR / USD rate was the sharp rise in US government bond yields. Thus, in the last week of February, the yield on 10-year Treasuries rose to 1.614%, and on 30-year bonds – to 2.401%, which became the highest values in the last 12 months. This was largely due to expectations of a faster recovery of the American economy as a result of the use of large-scale monetary and fiscal stimulus programs.
It is noteworthy that last February 26, the yield on 10-year US bonds exceeded the dividend yield on the S&P 500 index, which makes investments in US government securities more attractive in comparison with investments in stocks. Such a ratio of risks plays in favor of the dollar, and in the event of further growth in yields on US government bonds, conventionally risky currencies, including the euro, may come under pressure.
You should also take into account the fact that a change in sentiment in global markets may occur after the approval in the United States of a new plan for fiscal support for the economy, the expectations of which have supported the risk-on sentiment in the currency markets since November last year. So, on February 27, the House of Representatives voted to pass a stimulus package in the amount of $ 1.9 trillion, and the next step will be to consider this bill in the Senate, where it is highly likely to be approved even without the support of the Republicans.
EU quarantine does not support the euro
In addition, macro indicators for the European economy are still lagging behind their American counterparts due to problems with the supply of coronavirus vaccines at the beginning of the year and rather strict quarantine restrictions in a number of eurozone countries, which is an additional negative factor for the euro exchange rate. It is noteworthy that in February, the daily vaccination rate in the European Union was about 0.12% of the total population, which is four times lower than in the UK and the USA. At the same time, the ECB still sees the risks associated with the pandemic and the spread of new strains of infection, which will continue to affect the pace of economic recovery in the EU.
Against this background, in February, the volume of open positions in put options for the EUR / USD pair exceeded the volume of open positions in call options, which indicates an increase in bearish sentiment for the euro and indicates the likelihood of further depreciation of the exchange rate.
Euro, ruble and oil prices
As for the EUR / RUB rate, by the end of February, the euro fell against the ruble by 1.99%, to the level of 90.076 rubles / euro, however, in relation to this pair, the main factor was the rapid rise in oil prices.
So, over the month, quotations of “black gold” rose by more than 17% and reached the level of January 2020, which supported the currencies of oil exporting countries, including the ruble. This was facilitated by the voluntary decision of Saudi Arabia to cut oil production by 1 million barrels per day in February and March, the situation in Texas, where, due to abnormal cold weather, oil production fell by a record 1.1 million barrels per day, as well as signs of destabilization in the Middle East as a result of attacks by Yemeni insurgents on infrastructure in Saudi Arabia.
At the same time, already in the first week of March, an OPEC + meeting will take place, at which April production quotas will be determined. If quotas are softened, oil prices may adjust from current levels, which in turn may lead to a weakening of the ruble against the US dollar and the euro.
In addition, for the EUR / RUB pair, one should bear in mind the factor of the possible imposition of sanctions against Russia. So, on March 25-26, the EU summit will take place, at which a special meeting is planned on policy towards the Russian Federation. According to some reports, the EU is currently discussing the application of personal sanctions to a narrow circle of people, while economic sanctions are not yet being considered. If everything is limited to just such a scenario, then the impact of the sanctions factor on the Russian ruble will decrease.
Taking into account the above factors and in the absence of new external shocks, we believe that in March the EUR / USD rate will fluctuate in the range of USD 1.19-1.21 per euro, and the EUR / RUB rate – in the range of 88.5- RUB 91.5 for the euro.