EUR/USD at Multi-Month Low as ECB Maintains Lower Rates

The EUR/USD is at 1.1770 levels last seen in April, as ECB is not in a rush to hike interest rates, and the delta variant concerns are hurting economic activity.

The Euro to Dollar today is at a major support level at 1.1770 levels, which is a multi-month low. The Euro converter is on a bearish trend with a descending channel.

The 100 SMA is below the 200 SMA, showing weakness in the EUR/USD. The comments from the European Central Bank President Christine Lagarde to hold on to lower interest rates have further weakened the Euro to USD conversion.

EUR/USD at 1.770 as ECB Chief Expects Inflation to Reach 2%.

The ECB has left interest rates unchanged until inflation reaches 2%. The much-awaited ECB monetary policy announcement plays an important role in the Euro to USD conversion. The EUR/USD currency change was volatile during the policy announcement but recovered later.

The ECB has set the inflation target at 2%. The Governing Council is willing to keep interest rates at the same rate until inflation reaches 2%. Inflation is expected to be at 1.9% in 2021 and projected at 1.5% in 2022.

ECB President states that inflation is likely to fall by the start of 2022. Situations may improve to the pre-crisis level in the next Q1, says Lagarde.

The Eurozone is moving with good progress and has set a target of achieving 2% inflation in the medium term.

Interest rates will be 0.00%, 0.255, and -0.5% for refinancing operations, marginal lending facility, and deposit facility, respectively.

EUR/USD Slips on Delta Variant Concerns

The Delta variant Covid-19 is another growing worry, says Lagarde, as infections increase in the Eurozone. The Euro-to-Dollar conversion is showing weakness as virus fears take over.

The growing Delta coronavirus variant is worrying. It brings uncertainty to the economic outlook as it affects the health of people. The Euro to Dollar today is weaker with the virus and inflation fears hitting the economy. There is a recovery in the Eurozone, but the Delta variant casts a shadow on further economic recovery, says ECB chief Lagarde. While some policymakers want the economy to revert to pre-pandemic times, some warn authorities about the Delta variant risks, which had played havoc on the economy.

The Eurozone economy can do better in the third quarter, says ECB President Lagarde. The dovish tone in the ECB decision on inflation rate could not lift the EUR/USD currency change to higher levels.

Bond-Buying Plans by ECB

The Asset Purchase Program APP will bring in net purchases at €20 billion. The Governing Council says that it will keep monthly net asset purchases until favourable liquidity concerns sets in. The economy shows signs of improvement, and the APP will change accordingly, says the ECB.

Pandemic Emergency Purchase Program (PPE) will continue with its net asset purchases at €1,850 billion until March 2022. Purchases are to continue to prevent a tightening of financial conditions. The Euro immediately surged to 1.1800 against the Dollar. The PEPP will be at a higher pace than during the first quarter to promote price stability.

The ECB communicates with investors when it releases its monetary policy, as the interest rate policy reflects the economic conditions prevailing during that time. Investors find the Euro to Dollar conversion weakening, as the ECB plans to bring down stimulus schemes, though there is positive data from the economy. The ECB will decide when to stop or replace its PEPP scheme. The foreign exchange rate in the Eurozone watches the decisions made by the ECB.

The current account balance in the Eurozone has come down from 22.1 billion to 11.7 billion. Industrial production m/m has come down from 0.6% to -1%. It reflects that changing situations in the business cycle regarding earnings and employment levels.

The European Commission has projected a growth rate from 4.3% to 4.8%. Further, the year 2022 will show better performance in the Eurozone, says the EC. Despite the positive note, the current exchange rate Euro to USD is not showing upward traction.

The US Treasury yield is up at 1.285%. The US Dollar is moving higher against most of its peers. Both the Fed and the ECB do not have any intention of raising rates for a long time. In particular, private consumption is good and shows good improvement.

Consumer prices are also increasing. The inflation outlook is at 1.9% in 2021. There are various disruptions in the supply chain, along with high oil prices are adding pressure on the forex rate.

The Euro PPI month on month is up from 0.9% to 1.3%. Industrial production in France has come down from 0.1% to -0.3%. The Spanish services PMI has become better from 59.4 to 62.5, the Italian Services PMI has improved from 53.1 to 56.7, French Services PMI is marginally higher from 57.4 to 57.8. However, German final services PMI are down from 58.1 to 57.5.

There is good data from the services sector in various parts of the euro region. But, the currency exchange rate Euro to USD has not improved and remains at multi-month lows.