The U.S. Dollar remained steady during Tuesday trade in London while the Euro continued to under pressure as expectations grow that weak inflation data from the Eurozone, due to be released on Friday, will push the ECB into committing to additional stimulus. Sentiment for the common currency also remained bearish on an unexpected fall in business sentiment in Germany and ahead of tomorrow’s release of German consumer sentiment. Politics is also playing a part in the Euro’s continued weakness after the dissolution of the French cabinet over a fiscal policy dispute and while the situation in Ukraine remains unresolved.
As reported at 7:17 a.m. (EDT), the EUR/USD was trading at 1.3198, recovering from an earlier fall during the Asian trading session to $1.3178, the lowest price in almost a year. The EUR/CHF had traded at a session low of 1.2072 Swiss Francs on Monday, before recovering today to 1.2080 Swiss Francs; analysts say that the Euro’s decline could test the 1.20 cap which was placed on the Swiss Franc some three years ago by the Swiss National Bank.
Policy Divergence Offers Clues
What is also keeping the Euro on the backfoot is the growing divergence of monetary policy between the U.S. Federal Reserve Bank which appears to be on the brink of a possible escalation of interest rates, and the European Central Bank which may have no option but to commit to quantitative easing, especially if Friday’s CPI is as dismal as predictions suggest it might be.