In mid-April, the EURUSD rate decreased to 1.06. This marked the lowest point in the past six months, coming close to the worst levels seen in a year. Let’s explore why the euro is facing turbulence and why it might not be the right time to buy at these lows.
Check out the chart below for a breakdown of the EURUSD performance since the start of 2024. The European currency, once expected to challenge the US dollar's dominance in forex, has found itself in a shaky position — down by an additional 3% by mid-April. The latest significant drop occurred after Jerome Powell’s speech.
The Fed’s Chair reiterated what had been on the minds of many market participants: don't count on a US interest rate cut anytime soon. The impact was clear.
The following chart illustrates the movements of the EURUSD over the past 12 months. One can notice that the rate hit such lows only once during this period.
But maybe this is more about the strength of the USD rather than the weakness of the EUR? To check it, we’ve added the British pound, another heavyweight, to the same chart. And the GBP, supported by high inflation, has outperformed the USD over these 12 months.
The logical effect is that the euro is in trouble. However, it’s not necessarily a reason to get nervous. Consider this: the US dollar is gaining support from further delays in the anticipated interest rate cut cycle and the unexpectedly robust US economy. Now, experts are no longer anticipating a decline in the USD in the second half of the year because other major central banks (including the ECB) might lower their rates even earlier than the Fed. Plus, geopolitical tensions in the Middle East consolidate the US dollar's safe-haven status.
Meanwhile, the euro is gearing up for a fight. Levels of nearly 1.06 are attractive for European banks and funds looking to replenish currency supplies. That’s why many experts anticipate the EURUSD to trade within a narrow range without significant swings.
However, the forex market is highly volatile, and circumstances can change rapidly. Therefore, conducting your own analysis is crucial before making any trading decisions.