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Monthly Wrap: EUR bolstered by ECB speculation

currency-newsMonthly Wrap: EUR bolstered by ECB speculation
  • EUR Monthly Highs: £0.89, $1.25, AU$1.57, NZ$1.70 C$1.55
  • EUR Monthly Lows: £0.86, $1.19, AU$1.51, NZ$1.65 C$1.48
  • Euro soars amid USD sell-off.
  • Draghi suggests rate hike unlikely in 2018.
The euro started 2018 with a bang in January, with the single currency’s surge aided by the US dollar’s dreadful start to the year, which saw USD investors flocking to alternative currencies.

The euro was also driven higher by central bank speculation, with many analysts forecasting that 2018 could see the European Central Bank (ECB) raise interest rates for the first time since the financial crash.

However the single currency’s surge became a bit of a headache for ECB policymakers who (in their first policy meeting of the year) warned that a strong euro would undermine the bank’s attempts to raise inflation.

ECB President Mario Draghi even went so far to as to state that there would be no rate hike in 2018, although this still didn’t seem to prompt investors to ease up on the euro, especially given the bank’s more optimistic outlook on inflation.

The single currency was also granted one final leg up at the end of January with the publication of the Eurozone’s fourth quarter GDP figures, which confirmed the bloc grew at its fastest pace in a decade in 2017.

So, how is the euro likely to perform in February?

The Eurozone’s latest CPI reading will again be a key focus for EUR investors this month as markets look for any signs that inflation in the bloc is likely to heat up this year.

With underlying inflation ticking higher in January, there is likely to be some speculation that headline inflation may find a little more support in February.

Another focus will be on the Eurozone’s latest PMI figures, with any evidence that the bloc continued expanding at a healthy pace in the first quarter likely to lead to further speculation of future monetary tightening from the ECB.

The run up to the Italian elections in March may prompt some euro volatility this month as well, especially if it looks likely that a Eurosceptic party may claim victory.

Meanwhile the euro may also be influenced by some external factors, with the possibility of a sustained rally in the US dollar (USD) likely to dent the appeal of the single currency.
 

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