Renewed Dollar Selling Drives EURUSD To Break the 1.18 Mark

Azeez Mustapha
31 August 2021 | Updated: 31 August 2021

On the back of the increased offered position in the dollar, the pair trades in new multi-week highs as investors analyze Powell’s post-Jackson Hole remarks and cautionary message, while month-end flows add to the USD’s gloom.

Dollar selling resumes today, with the EUR/USD finally breaching through the 1.18 level. The NZD, on the other hand, is making a strong comeback after the Covid case number fell to its lowest level in six days. However, the markets remain split elsewhere, with the Euro showing some more strength, followed by the Sterling. The Canadian and Australian dollars lag behind the New Zealand dollar.

Following Friday’s strong rebound and Monday’s ambiguous market action, the EUR/USD has advanced further north of the 1.1800 line. However, the move has stalled ahead of 1.1850 thus far on Tuesday.

Eurozone Shrugs Off a Rise in the Consumer Price Index

In recent months, inflation has been a term among central banks, particularly in the United States. Despite the Fed’s assurances that inflation is only temporary and will subside, the markets continue to be concerned. The ECB is in the odd situation of having to cope with an increase in inflation while also reassuring investors that the increase is only transitory. This message, however, is unlikely to please the markets, which are expecting the Bank to provide some insight into a prospective taper.

The European Central Bank recently updated its forward guidance, stating that it will not raise rates unless there is evidence that inflation will remain “durably” near the two percent objective. For years, inflation has been considerably below the two percent target, but it is expected to exceed it this year.

At the September meeting, policymakers are anticipated to address the timing of a taper of a pandemic emergency bond program. Still, when it comes to tapering, the ECB is lagging behind the Fed and is unlikely to reveal any deadlines before December at the earliest. The Fed has yet to disclose a reduction timeframe, and the European Central Bank is unlikely to be any more forthcoming about its reducing ambitions.

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Azeez Mustapha

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.