Euro Rallies Largely on the Back of Dollar Weakness

25 May 2021 | Updated: 25 May 2021

Against the US dollar, the euro regains ground. EUR/USD is exchanging at 1.2255 in the American session, up 0.34 percent on the day. The euro has hit a new daily high of 1.2262, the highest since Jan. 4. The euro gained a foothold despite the vacation on Monday, and the rising trend has continued on Tuesday. The German Ifo Business Confidence Index for May surpassed, which impressed investors.

The euro has risen sharply today, while the German DAX and Stoxx 600 have set new peaks. Positive sentiments were boosted by a positive German business climate reading. For the time being, only the New Zealand Dollar and Swiss Franc outshine the common currency. Strong investor confidence, on the other hand, makes the Yen the worst currency, followed by the Dollar and then Sterling.

The Federal Reserve has maintained its stance that its ultra-accommodative approach will continue and that current QE levels will be maintained. Inflation rose sharply in April, prompting speculation that the Fed would consider reducing its quantitative easing program. This boosted the US dollar briefly in May, but the market appears to have embraced the Fed’s line that higher inflation is only temporary and that policy tightening is still a long way off. The US dollar has been under pressure as a result, with the euro and other major currencies continuing to rise.

Euro performance undeterred by Germany’s low GDP

Germany is a country that has an Ifo market climate increased to 99.2 in May, up from 96.8, exceeding the 98.1 forecasts. This is the highest amount since May of this year. The current assessment index increased to 95.7 from 94.1, exceeding the 95.5 forecasts. The expectations index increased to 102.9, up from 99.5, which was higher than the forecast of 101.0.

Manufacturing increased from 25.1 to 25.7, services increased from 3.5 to 13.7, trade increased from -0.5 to 8.4, and construction increased from 0.7 to 2.8. The strong euro has been unaffected by Germany’s poor GDP report for the first quarter.

Germany’s economy shrank by 3.2 percent year on year and 1.8 percent year on year (MoM). The revival of Covid-19 in the first quarter of Q1 hindered economic growth, and the German economy is technically in recession, with fourth-quarter GDP still in negative territory.

Amid the gloomy GDP survey, the outlook appears to be upbeat, as the vaccine rollout has culminated in a severe decline in Covid cases in the last week, and some German states are loosening health constraints.

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Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.