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Weaker Dollar Provides Euro Opportunity to Gain

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  • Euro Strengthens Ahead of Lagarde Speech
  • US Inflation Numbers and Powell Speech Awaited
  • Stocks Looking for Positivity After Muted Monday

The US Dollar has been the prevailing picture of strength in the forex market for quite some time now. This has been to the detriment of both the Euro and Pound which have struggled to gain any traction. This week that has started to change. Both currencies have rallied during this period of slight Dollar weakness. The Euro now sits consolidated above 1.135 while the Pound has broken 1.36. This comes ahead of the weeks’ US inflation report and with the stock market also seeking direction as Treasury Yields dip back. 

Euro Finds Moment to Gather Strength

The Euro has been under pressure from the Dollar and others for most of the last several months. During recent weeks though, the currency appears to have hit its low and commenced a return to form. This was helped yesterday by an unexpected improvement in investor sentiment within the bloc. 

Combining this with some uncharacteristic weakness in the US Dollar yesterday saw the Euro head above 1.135. This caution against the Dollar may have been the result of slightly declining Treasury yields which moved below the two-year high they had occupied. Those forex trading the GBP also saw a rise in the currency although this upside could remain limited as the UK is still dealing with Brexit-related trade issues. 

Caution Ahead of Key Inflation Data

Forex brokers have noted a shift in Dollar trading ahead of the monthly CPI data release as well as any comments on policy that Federal Reserve Chairman Powell will make when he speaks. These figures have come increasingly into focus throughout the pandemic as inflationary pressure continues despite a more hawkish Fed approach. Disappointing NFP numbers from last Friday may also have impacted the US Dollar.  

A further factor in the weakening of the Dollar as traders await the CPI numbers is the dropping back of US Treasury yields. The 10-year which is an important benchmark for many investors dropped back yesterday from a 2-year high point close to 1.76% where it is set to begin the day. 

Stocks Looking to Improve on Slow Start

Wall Street made a slow start to the week as both the Dow Jones and S&P 500 posted overall losses for the day. The Dow lost more than 160 points to finish 0.4% lower, while the S&P dropped back 0.1%. The NASDAQ meanwhile rallied back from a losing position to close higher having been down more than 2.5% at certain points in the day. 

European markets are set to open higher and this is likely to be followed by an improved opening in the US with futures already moving higher. A lot will rest on earnings as we get into another important season of these releases, while an eye will also be on the inflation data released tomorrow.

Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

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