The Euro to US Dollar (EUR/USD) exchange rate inched away from a 12-year low on Monday as investors embarked on a round of US Dollar profit taking ahead of Wednesday’s Federal Reserve policy meeting.
The Euro to US Dollar (EUR/USD) exchange rate touched a session high of 1.0616
The ‘Greenback’ had made solid gains for four weeks straight before staging something of a retreat on Monday morning. The US currency had been advancing strongly on increased expectations that Fed policy makers will suggest that interest rates in the world’s largest economy will be hiked in the summer.
‘It pays to be prudent in terms of locking in some of the Dollar’s gains. It has been a pretty headlong rush. There are a lot of reasons for the US Dollar to maintain its course but the proximity of the Fed probably mitigates against extending the moves in the short term,’ said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce.
After its strong run of solid gains, some economists are suggesting that the US Dollar is now vulnerable to a reversal, others however think that the US Dollars gains against the Euro are far from over. Despite today’s slight declines the ‘Greenback’ is still on course to make its biggest quarterly gain on record as the European Central Bank’s (ECB) quantitative easing programme continues.
‘The US Dollar strengthening trend still remains firmly in place. Monday’s move is just a modest pullback after the strong gains over the last couple of weeks,’ said currency strategist Lee Hardman.
Greece Continues to Weigh on Euro Exchange Rate
Sentiment towards the single currency remains under pressure due to the uncertainty regarding the Greece situation.
The nation managed to pay off €580 million owe to the International Monetary Fund (IMF) but still has to pay another €350 million by the end of the week. The repayments are shrinking Greece’s cash reserves, putting pressure on Athens to make reforms that will satisfy the nation’s creditors and lead to the unlocking of a new round of bailout funds.
The war of words between Greece and Germany rages on with a poll showing that the majority of Germans want Greece to leave the Eurozone. Greek defence minister Panos Kammenos also accused German Finance Minister Wolfgang Schauble of using a form of ‘psychological warfare’ on his country.
‘I do not understand why he criticises Greece every day with new statements. It’s like psychological warfare and Schaueble is poisoning the relationship between the two countries through that,’ Kammenos said.
The Euro could regain more ground on Tuesday if Eurozone inflation and economic sentiment data comes in positively.