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Euro to US Dollar Exchange Rate Returns to Key 1.22 Levels as Federal Reserve Stays Dovish

Published: 25 Feb at 3 PM Tags: Euro Exchange Rate, Dollar Exchange Rate, Currency Exchange, Euro Crisis, Exchange Rates, Economy, Inflation, France,

Despite uncertainty over the Eurozone’s coronavirus outlook, the Euro to US Dollar (EUR/USD) exchange rate has been trending higher again this week. Whether or not the pair sustains a strong advance depends on upcoming Eurozone and US data however.

Since markets opened this week, EUR/USD has been trending with an upside bias. EUR/USD opened this week at the level of 1.2117 and has been edging higher and higher each day.

Today, EUR/USD touched on a high of 1.2235. This was the best level for EUR/USD in over a month, since the beginning of January. This also put the pair closer to its best levels in years.

The Euro has been able to return relatively close to its best levels in years against its rival the US Dollar, even as the Eurozone coronavirus outlook remains filled with uncertainties.

Investors have been hesitant to buy the Euro too much recently, amid concerns over the Eurozone’s difficulties securing vaccinations. Many key Eurozone economies, including Germany, have also seen longer lockdowns than hoped.

However, the shared currency has been benefitting largely from weakness in rivals.

As the US Dollar is the Euro’s biggest rival, the two often share a negative correlation. Much of the Euro’s recent strength has been due to persisting losses in the US Dollar.

This is making the Euro appealing versus the US Dollar even as the European Central Bank (ECB) remains cautious and recent Eurozone data continues to show the nation grappling with the pandemic.

Investors finally pushed higher on the Euro following the latest dovish comments from Federal Reserve Chairman Jerome Powell, which of course led to fresh selling in the US Dollar.

On Wednesday evening, Fed Chairman Powell reassured that recent rises in US inflation were not likely to last, and said that the Fed would not tighten US monetary policy until the US had shown a more solid improvement in economic activity.

Investors who had been speculating on a more optimistic or even hawkish Fed were surprised by the news, which led to a fresh bout of US Dollar selling.

Overall, the US economy being hit hard by the coronavirus pandemic combined with market expectations for global recovery later this year are keeping the safe haven US Dollar unappealing.

There is more key Eurozone and US data due before markets end for the week though. In fact, a surprise improvement in US data might help the US Dollar to strengthen.

A slew of French data, including growth, inflation and unemployment figures, will be published tomorrow and could influence the Euro if it surprises.

The US data due on Friday afternoon could be even more influential. US wholesale inventories and Personal Consumption Expenditure (PCE) inflation stats will be published, as well as Michigan Consumer Sentiment.

Much stronger than expected US data could boost US economic recovery hopes, and make it harder for the Euro to US Dollar (EUR/USD) exchange rate to trend near its best levels for much longer.