Euro trades sideways

27 Mayıs 2024

Euro trades sideways as business confidence declines amid weak market liquidity

Today’s market analysis on behalf of Samer Hasn Market Analyst and part of the Research Team at XS.com

The euro is trading in a sideways range against the dollar, with a tendency toward slight gains near the 1.08483 level, with the American markets on holiday, which causes a decline in liquidity.

The euro’s movements today also come with confidence in the business climate in Germany not rising contrary to expectations, while the single currency needs for a continued flow of stronger-than-expected data to counter the narrative of “higher for longer period” in the US, which constitute a key factor supporting the dollar.

A set of strong economic data, statements by Federal Reserve members, and what was stated in the minutes of the last monetary policy meeting that we witnessed over the past week reduced hope of the possibility of lowering interest rates in September and November next. The odds that the central bank would hold the current rates rose in those months to 50% and 38%, respectively, and this represents a significant increase from the odds we saw previously, according to the CME FedWatch Tool.

On the other hand, the markets are preparing for the European Central Bank to begin the path of monetary easing with the expected cut next June, and this may widen the gap in rates and bond yields.

Therefore, hope that growth can be restored and the contraction of economic activities can be stopped is the only support for the euro to confront the widening of the rate gap.

In today’s data, the Ifo Business Climate Confidence Index for May fell slightly from the previous reading to 89.3, which was contrary to expectations for a rise to 90.4, which would have represented the highest levels in a year. Today’s reading came in light of a decline in business satisfaction with the current situation, despite continued optimism – a decline in pessimism – about the future in the various sectors of manufacturing, services, trade and construction.

While the markets’ focus turns to the May reading of the consumer price index in the euro zone, with inflation expected to accelerate to 2.5% on an annual basis from 2.4%.

 

Zaid Barem / YMM