EUR/USD Strengthens As Investors Doubt US Economic Growth In The Near Term
EUR/USD is trading firmly around 1.0850 after recovering from early losses in the North American session on Monday (3/10). The major currency pair strengthened as the US Dollar (USD) struggled to gain ground after last week's sharp decline. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, traded vulnerable near a fresh four-month low of 103.50.
The Euro (EUR) traded cautiously against its major peers at the start of the week. The euro faced pressure as profit-taking began after last week's strong up move. The euro outperformed as German leaders, including new Chancellor-designate Frederich Merz, agreed to extend the borrowing limit or so-called "debt brake" and create a 500 billion Euro (EUR) infrastructure fund to boost defense spending and stimulate economic growth.
Germany’s decision to provide a massive economic stimulus forced traders to scale back bets that the European Central Bank (ECB) would cut interest rates twice more this year, on the assumption that the impact could be inflationary for the Eurozone. Last week, the ECB cut its Deposit Facility rate by 25 basis points (bps) to 2.5% but left the previously set monetary expansion path untouched.
Meanwhile, comments from ECB policymaker and Bank of Portugal Governor Mario Centeno at a conference on Friday suggested that more rate cuts were on the way. Centeno said that the Eurozone was on its way to “normalizing monetary policy”. On the inflation outlook, Centeno said that inflation was “almost out of the woods” and had slowed to “levels much closer to our target”.
On the economic front, German Industrial Production data showed month-on-month growth at a faster-than-expected pace in January. Eurozone locomotive industrial production rose by 2%, much stronger than the 1.5% forecast. In December, it fell by 1.5%. Meanwhile, Eurozone Sentix Investor Confidence improved to -2.9 in March from -12.7 in February.(Newsmaker23)
Source: FXstreet
