Euro Resilience Amidst Upbeat Sentiment and Hawkish ECB Remarks

The Euro remains resilient, defending the 1.07 marker against the Dollar ahead of the weekend, despite a rally attempted by the U.S. Dollar following the release of robust U.S. consumer spending figures on Thursday.

Rising Euro Supported by Positive Eurozone Sentiment

Ruta Prieskienyte, FX Strategist at Convera, notes that the Euro maintained its position above $1.07, a 2-week high, despite heightened intraday volatility. The upbeat sentiment in the Eurozone, coupled with hawkish statements from ECB policymakers, provided support to the common currency amidst the Dollar’s rally.

Dollar Fatigue and Improved Eurozone Sentiment

The inability of the Dollar to sustain its gains reflects a tired USD rally and an improvement in Eurozone sentiment. This shift has reduced the likelihood of a swift interest rate cut cycle by the ECB.

Focus on ECB’s Post-June Policy Path

While markets anticipate a June interest rate cut by the ECB, the impact of such a move on the Euro is expected to be limited. Attention turns to the policy trajectory beyond June, with discussions of potential successive rate cuts in July, which could potentially weaken the Euro.

INR’s Forecast on ECB’s Rate Decisions

Francesco Pesole, FX Strategist at ING, suggests that investors should focus on the ECB’s policy path beyond June. ING predicts that the ECB will not implement consecutive rate cuts and will deliver only 75bp of total easing in 2024.

Support for Euro Continues

The Euro is likely to find continued support if the ECB pushes back against expectations of immediate rate cuts, a scenario increasingly probable given the improving confidence in the Eurozone, particularly in Germany.

German Economic Recovery Prospects

Recent business surveys indicate a potential rebound in Germany’s economy. Prieskienyte highlights the positive trend, stating that “Stars align for a German recovery.” The Gfk consumer confidence index, reaching its highest level since May 2022, reflects improved income expectations, bolstered by rising wages, declining inflation, and increased household spending willingness.

Positive Ifo Index Indicating German Recovery

The April Ifo index, a leading indicator for Germany, further supports the optimistic outlook for a German recovery. With the current assessment and expectations components surpassing market expectations, the stage is set for economic resurgence in Germany.

EUR/USD Outlook

Despite concerns about EUR/USD nearing parity, Pesole argues that the economic fundamentals of the Eurozone, such as terms of trade, are significantly better than they were in 2022, suggesting a lower likelihood of the pair dropping below 1.00.