Euro Weakens Against Dollar Amid ECB Tightening Worries

The EUR/USD pair recently witnessed a fall as the euro weakened against the US dollar, causing a stir in the markets.

The euro’s fall has come amid concerns about the possible overtightening of ECB policy as well as the divergence in economic performance between the Eurozone and the US. The US has been recovering from the COVID-19 pandemic faster than Europe, with the country’s economy growing by 4.3% in Q4 2020, compared to Europe’s contraction of 0.7% in the same period. This divergence has led to a rise in US Treasury yields, which has, in turn, led to an increase in the value of the US dollar.

Euro Traders to Closely Monitor ECB Policy Meeting

Investors will be looking out for the US Federal Reserve’s response to the rise in Treasury yields, as well as the ECB’s upcoming policy meeting in March, for further direction on the EUR/USD. The Fed has reiterated that it will keep interest rates near zero, which could limit the dollar’s potential gains in the short term. At the same time, any hawkish shift in ECB policy could lead to a further decline in the euro.

Despite the recent drop in the EUR/USD, it is worth noting that the pair has been in an uptrend for several months, with strong support at around 1.20. Traders will be keeping a close eye on this support level, as any break below it could signal a change in trend.

In conclusion, the EUR/USD is currently experiencing a pullback due to concerns over ECB policy and the divergence in economic performance between the Eurozone and the US. Traders will be closely monitoring future inflation data, the ECB’s upcoming policy meeting, and the Fed’s response to rising Treasury yields for further direction on the pair.

 

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