On Thursday, the EUR/USD pair rose by 0.6% and hovered above the psychological 1.0900 level. The surge was attributed to several factors, including a boost in market sentiment, broad-based US dollar weakness, and hotter-than-expected inflation data in Germany. This upward trend is threatening to recapture this month’s high and could overtake a pivotal trendline resistance.
The EUR/USD pair has been trending higher since the start of the year, and this upward momentum appears to be continuing. Analysts believe that the pair could climb further, with some predicting that it could hit 1.1000 soon. However, as with any market trend, there are risks and uncertainties that investors must consider.
Risk-On Sentiment Boosts EUR/USD Pair
One of the primary drivers of the EUR/USD rally was the risk-on sentiment that has been sweeping the market. Investors have been more willing to take on risk, as global economic growth appears to be improving. This optimism has led to increased demand for riskier assets, such as stocks and emerging market currencies, and a corresponding decline in demand for safe-haven currencies like the US dollar.
This shift in sentiment has been fueled by a number of factors, including a successful rollout of COVID-19 vaccines, massive fiscal stimulus packages, and low interest rates. As economies reopen, investors are betting on a strong rebound in global growth, which would benefit riskier assets.
Weak US Dollar Favors EUR/USD Pair
Another factor driving the EUR/USD rally is the weakening US dollar. The dollar index, which measures the value of the US dollar against a basket of other currencies, has been declining in recent months. This decline has been fueled by several factors, including the Federal Reserve’s commitment to keeping interest rates low and the massive fiscal stimulus packages passed by the US government.
As the US dollar weakens, investors are looking for other currencies to invest in, including the euro. The euro has been performing well against the US dollar, and this trend is likely to continue as long as the US dollar remains weak.
German Inflation Data Impacts EUR/USD Pair
Finally, hotter-than-expected inflation data in Germany has also contributed to the EUR/USD rally. Inflation in Germany rose to 1.7% in March, up from 1.3% in February. This increase was driven by higher energy prices and a rebound in consumer spending.
Higher inflation is generally seen as a positive for currencies, as it indicates a strong economy. However, it can also lead to higher interest rates, which could eventually weigh on economic growth. As such, investors are closely watching inflation data to gauge the health of the global economy and the potential impact on currencies.
In conclusion, the EUR/USD pair has been rallying in recent days, driven by a combination of risk-on sentiment, weak US dollar, and hotter-than-expected inflation data in Germany. While this trend is promising for investors, there are risks and uncertainties that must be considered. As always, investors should consult with their financial advisors and conduct thorough research before making any investment decisions.