EUR/USD corrects to near 1.1560 as USD gains ground

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The EUR/USD pair retraces from the weekly high of 1.1616 posted on Thursday, trades 0.2% lower at around 1.1560 during the Asian trading session on Friday. The major currency pair corrects as the US Dollar (USD) attempts recovery after a sharp sell-off.

EUR/USD retraces to near 1.1560 from the weekly high of 1.1616 as the US Dollar gains ground.
Diminished fears of the Fed’s policy divergence with other central banks had weighed on the US Dollar.
The Euro gains on hopes of the ECB’s rate hike talks in April.

US Dollar Price Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.24%	0.17%	0.38%	-0.07%	0.03%	-0.16%	0.13%
EUR	-0.24%		-0.07%	0.16%	-0.29%	-0.21%	-0.39%	-0.11%
GBP	-0.17%	0.07%		0.23%	-0.25%	-0.14%	-0.33%	-0.04%
JPY	-0.38%	-0.16%	-0.23%		-0.45%	-0.35%	-0.55%	-0.24%
CAD	0.07%	0.29%	0.25%	0.45%		0.10%	-0.09%	0.20%
AUD	-0.03%	0.21%	0.14%	0.35%	-0.10%		-0.19%	0.10%
NZD	0.16%	0.39%	0.33%	0.55%	0.09%	0.19%		0.29%
CHF	-0.13%	0.11%	0.04%	0.24%	-0.20%	-0.10%	-0.29%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is up 0.2% to near 99.35. The USD Index fell over 1% to near 99.00 on Thursday after major global central banks warned of upside inflation risks and signaled an extended pause in the wake of higher energy prices amid conflicts in the Middle East. This led to diminishing fears of wider policy divergence between the Federal Reserve (Fed) and other global central banks.

The European Central Bank (ECB) decided to leave interest rates unchanged on Thursday, citing uncertainty surrounding prices and the economy due to the joint military action by the United States (US) and Israel against Iran. Also, President Christine Lagarde warned in the press conference that the “increase in energy prices will drive inflation above 2% in the near term”.

Meanwhile, a Reuters report showed in the North American session on Thursday that the ECB could discuss hiking key borrowing rates in April and might do so in the June meeting if energy prices continue to remain higher. This led to a sharp upside move in the Euro (EUR).

For more cues on the ECB’s monetary policy outlook and clarity on reports claiming the potential discussion of an interest rate hike in April, investors will focus on commentaries from officials who generally comment on forward monetary conditions after a policy announcement.

ECB FAQs

What is the ECB and how does it influence the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

What is Quantitative Easing (QE) and how does it affect the Euro?

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

What is Quantitative tightening (QT) and how does it affect the Euro?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.

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