The Euro is slightly lower against the greenback, still reeling from stronger than expected inflation figures which hit the market a few days ago and many analysts don’t expect the situation to improve for the European currency anytime soon.
There is still some uncertainty on whether the government’s efforts to freeze hikes in energy bills which many believe would lead to lower inflation figures and many countries in the Eurozone are not seeing eye to eye regarding the freeze in energy prices. This bickering may cause delays in key decisions and there are rumors again that some countries may want to quit the Euro all together.
One advantage the US has over Europe is there is only a handful of decision makers on the Federal level which means key policies can be pushed through faster which tends to benefit the American economy.
“There could be a policy divergence among EU countries. If EU members don’t show solidarity with each other in the difficult months to come, then questions about the future of the EUR might come to the forefront again. If this materializes, then the EUR will weaken even more against the USD.” Said analysts from Nordea.
“The weak euro area economic outlook compared to the US is one important reason why we expect the USD to continue to outperform the EUR, even if we expect the ECB to remain hawkish in the months ahead. EUR/USD will continue to head lower and bottom at 0.95 later this year.” They added.
Looking further ahead today, the main drivers of the EUR/USD currency pair will be the release of the initial claims jobs figures and retail sales numbers from the US.
The later is of vital importance because a good reading will add pressure on the US Federal reserve to raise interest rates by 100 basis points next week to help reign in record inflation and the Euro will likely take another major hit against the greenback.