HG MARKETS:

The euro has edged marginally below the 1.05 level, as the recent upward momentum has proven unsustainable. Current market conditions suggest that a prolonged positive trajectory for the single European currency is unlikely. The primary factors weighing on the euro, as previously outlined, continue to dominate market sentiment, limiting its ability to stage a meaningful recovery.

Geopolitical risks, political uncertainty across Europe, and concerns over the region’s economic outlook remain significant headwinds for the euro. On the other side of the Atlantic, the U.S. dollar has regained strength, bolstered by a rebound in yields on U.S. government debt. This follows a period of declining yields, which briefly provided some relief for the euro.

Recent movements in the 10-year U.S. Treasury yield, which dipped to 4.12% earlier, allowed the euro to temporarily climb above the 1.06 level. However, the lack of significant surprises in recent economic data has brought the U.S. dollar back into focus, reinforcing its position.

Today’s release of U.S. consumer inflation data is expected to be a key market driver. Any deviation from expectations could significantly impact the EUR/USD exchange rate. Additionally, tomorrow’s European Central Bank (ECB) meeting will be closely watched, as the market anticipates a further 25 basis point reduction in key interest rates. Such a move is likely to keep the euro under pressure.

For now, the outlook for the euro remains cautious. A potential decline could present buying opportunities, but only if further downward movement materializes. Market participants are advised to monitor upcoming data and central bank developments closely.