- Federal Reserve Downplays Negative Interest Rates
- ECB Forward dovish guidance
- Dollar Strength
A strengthened dollar amidst growing concerns about economic recession is the latest tailwind that continues to pile pressure on the EUR/USD. The currency pair has dropped to three-year lows as uncertainty continues to grip the EU economy.
EUR/USD retraced from weekly highs of 1.0897 on the Federal Reserve Chairman, Jerome Powell downplaying calls for negative interest rates to support the struggling the U.S economy. The remarks resulted in the strengthening of the dollar, which appears to have found support above the $100.03 level against a basket of other major currencies.
After initially dropping to the $1.0797 level, EUR/USD has bounced back but appears to be facing stiff resistance at the 1.08097 level. The pair looks set to continue trading in a defined trading range of 1.0897 and 1.0727 amidst uncertainties in the Eurozone.
The EURO could remain under pressure against the greenback as the European Central Bank continues to maintain dovish forward guidance. Policymakers’ in the region insisting that interest rates’ will remain at their present lows is one of the tailwinds that continue to take a toll on the Euro currency.
A German Constitutional court ruling that the ECB must prove why it needs to go forth with the purchase of government bonds also continues to cause jitters around the EURO. For starters, it raises serious concerns as to whether the ECB has the free will to initiate policies that have the potential to rejuvenate the battered EU economy.
While officials maintain that the ECB will continue to expand the balance sheet throughout the year, a wave of uncertainty continues to grip the Eurozone in the wake of the controversial German court ruling.
A Looming economic recession triggered by the COVID-19 pandemic is another headache that should continue to weigh in on the EUR/USD pair. The region has continued to post weak economic data with key economics of Germany, France, and Italy struggling to bounce back in the wake of the COVID-19 fallout.